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U.S. tariffs take effect; China announces retaliation

07 July 2018

Its 0400 GMT and the US tariffs on China take effect, as confirmed by the US President Trump late-Thursday.

Trump has for years slammed what he describes as Beijing's underhand economic treatment of the United States, with the USA trade deficit in goods with China ballooning to a record US$375.2 billion last year.

The White House previously described the situation as a "trade dispute" that's justified because of China's own aggressive trade practices and alleged theft of American intellectual property - claims Chinese officials have denied.

Beijing insists it's the injured party. The first round of tariffs on China take effect on Friday, and Trump has threatened more. Eastern time on $34 billion worth of Chinese imports, a first step in what could become an accelerating series of tariffs.

Some economists warn that an all-out trade war would put the brakes on the US economy by eroding business confidence, interrupting supply chains and increasing costs of imports to USA companies and consumers. The U.S. government is afraid China is pursuing this in an unfair way.

China's exports to the United States grew 5.4 per cent in the first half, 13.9 percentage points lower than for the same period previous year, according to the General Administration of Customs. It said they would damage the global economy unless other countries stop them.

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"The first round's impact is not that big, but the key is whether there will be more - a second round of revenge and retaliation and a third round, " said Shi Yinhong, a professor of global relations at Renmin University in Beijing.

After that, Trump has made it clear he is planning additional duties on Chinese products worth a staggering $500 billion. Another $16 billion of goods could follow in two weeks, Trump earlier told reporters, before suggesting the final total could eventually reach $550 billion, a figure that exceeds all of US goods imports from China in 2017. In fact, the scuttlebutt in Washington is that the Chinese were keen on making a deal to whittle down their surplus by pledging to buy $200 billion worth of American goods during talks in May, but the US President instructed his negotiators to seek ironclad guarantees, not just promises.

That amount is higher than an earlier threat from Trump to target as much as $450 billion of Chinese exports.

That would bring the total of targeted Chinese goods to potentially $550bn - more than the $506bn in goods that China shipped to the United States past year.

Replacing American shipments with coal from other places would not be hard for China, but a loss of business with the world's top importer of the fuel would hurt companies in West Virginia, a state that heavily favoured Trump in the 2016 presidential election. Previously, Trump had threatened up to $400 billion in additional tariffs should China follow through on its plans to retaliate against the initial USA tariffs on Chinese goods including autos, computer disk drives, pump and valve parts and light-emitting diodes.

It also is rooted in the clash between American notions of free trade and Beijing's state-led development model.

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In 1900, tariffs accounted for about 30% of the total value of USA imports, as the country was trying to restrict imports and develop its young industrial sector.

The new tariffs will bring back a level of American protectionism that has not been seen since 1970 when the average charge stood at 6.5%.

"The trade headlines are at this point keeping the market uncertain", said Quincy Krosby, chief market strategist at Prudential Financial.

China's tariff actions in response took effect at 12:01 Beijing, state news agency Xinhua reported, citing an unidentified official from the General Administration of Customs.

U.S. Customs and Border Protection said in a notice it would begin collecting the 25 percent duties on 818 product lines identified in June by the U.S. Trade Representative's Office.

"[The US has started the] largest trade war in economic history".

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Nonetheless, despite the urging of business groups and lawmakers to negotiate a truce, there was little sign Friday that the two sides would reach a compromise anytime soon.

U.S. tariffs take effect; China announces retaliation