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Likely impact of US-China trade war: Prices up, growth down

06 July 2018

The price of US soybeans has plunged 17 percent over the past month on fears that Chinese tariffs will cut off American farmers from a market that buys about 60 percent of their soybean exports.

Chinese President Xi Jinping (left) and US President Donald Trump in Florida past year.

The first round of these tariffs were due to take affect at 4pm NZT. "If the United States is determined to escalate conflicts with China, then so be it". The tariffs mark some of the first material movements toward a trade war between the world's largest economies. The milestone marks a new and damaging phase in a conflict that has roiled markets and cast a shadow over the global growth outlook.

China's Ministry of Commerce also said it would look to report the the World Trade Organization (WTO) on Friday, accusing Washington of breaching global trade laws.

Businesses will have to pay 25 percent additional tax on $US34b of certain Chinese products they import - including aircraft tyres and commercial dishwashers.

China's tariffs, on the other hand, will hit agricultural products like soybeans and pork. This prompted Beijing to respond in kind with levy tariffs on US imports, China's foreign ministry said Friday.

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How did we get here?

Shaun Rein, managing director at the China Market Research Group in Shanghai, said the Chinese government's next play could be to stoke anti-American sentiments among consumers - similar to the boycotts it ordered previous year on South Korea's Lotte Group, which caused dozens of the company's convenience stores to shutter.

Previously, Beijing had vowed to impose counter-tariffs of 25 percent would apply on United States agricultural and other products worth $34 billion.

China has vowed to fight back to protect its economy.

In addition to the $US16b under consultation, Mr Trump has flagged there could be more tariffs in store. Trump has railed against Beijing for intellectual property theft and barriers to entry for U.S. businesses and a $375 billion USA trade deficit with China.

The dispute reflects foreign frustration with China's state-led industrial development strategy, which Washington, Europe, Japan and other trading partners say hurt their companies and violate its market-opening commitments.

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What could the fallout be?

"If what the United States wants is to escalate a trade war with China, then so be it". Domestic consumption now accounts for more than half of the country's GDP.

The bank estimates that every $US100b of imports affected by the tariffs represents about 0.5 percent of global trade and 0.1 percent of global GDP. -China economic relationship will negatively impact their operations in China, " he said.

But economists also say the trade war comes as the period of synchronized expansion among the world´s largest economies, which is bolstering demand for USA goods and services, may be starting to run out of steam, raising the risks that tariffs could harm growth.

"China will feel some pain but not as much as these firms in the supply chain that contribute such a large share of the value added in Chinese exports", Peterson wrote.

The White House had previously said it would consult on tariffs on another $16bn of products, which Mr Trump has suggested could come into effect later this month. "If we're trying to sell there (another country), we should have the same opportunity as they have the right to sell here". Jeremy Haft, author of Unmade in China, tells NPR's Noel King that Beijing has a number of arrows in its economic quiver, and that it is "already using these weapons". But President Trump's fundamentally nativist outlook and his take-no-prisoners, give-no-quarter negotiating style, Indian officials are acknowledging privately, comes as a sobering reminder that there is no such thing as a free lunch or friendship based on geo-politics with a businessman-President.

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Likely impact of US-China trade war: Prices up, growth down