Businesses across U.S., China brace for huge tariff impact

BEIJING, China - After first making threats in March this year, to impose heavy tariffs, the U.S. President Donald Trump announced that the country would impose tariffs of 25 percent on $50 billion worth of Chinese goods.

Accusing Beijing of intellectual copyright theft, U.S. imposed tariffs that will affect over 800 Chinese products worth $34 billion in annual trade.

Further, the White House said that tariffs on the other $16 billion of Chinese products would be applied after a consultation period.

It said that U.S. customs agents will begin collecting the new tariffs on Chinese goods starting July 6.

China’s response was immediate and vigorous.

China’s Finance Ministry announced that the country’s retaliatory tariffs on U.S. imports will be rolled out in two waves and that Beijing will impose 25 percent tariffs on 545 U.S. items worth $34 billion starting on July 6.

Beijing mirrored Washington’s announcement, and said that tariffs on the remaining 114 items will start later.

While Chinese tariffs on America’s agricultural products, automobiles and seafood will be implanted on July 6, the remaining products, including chemicals, medical equipment and energy products, will be affected later.

Meanwhile, America’s new tariffs impact Chinese products essentially from the aerospace, robotics, manufacturing and auto industries and the products range from aircraft tyres to turbines and even commercial dishwashers.

China accused the U.S. of firing the first shot and opening up a trade war which will be damaging.

China's Commerce Ministry said, “China is unwilling to have a trade war, but the Chinese side has no choice but to strongly oppose this, due to the United States' myopic behaviour that will harm both parties.”

On Saturday, economists largely opined that Trump’s strategy to hit China with steep tariffs in a bid to stop it dominating the industries of the future, doomed to fail.

Trump’s recent tariff list targets exports of Chinese goods that are the building blocks to becoming an advanced industrial power, including machinery and electronics, metals, chemicals and transportation equipment.

However, economists questioned whether making imports of those things to the U.S. more expensive will manage to curtail the Chinese sectors enough to thwart the nation’s advance toward mastering fields like robots, biotechnology and quantum computers.

Andrew Polk, co-founder of research firm Trivium China in Beijing said, “The U.S. believes that they can affect China’s ability to move up the value chain by restricting exports, but they are wrong. There’s still a whole world that China can sell these goods to.”

According to analysts, America’s new tariffs, and plans to unveil additional investment restrictions means that the the U.S. now views China as a strategic rival.

Further, imposing such curbs marks a concrete shift in the U.S. strategy toward containing China’s ascent in advanced industries.

Further, economists have said that by targeting China’s plan for future industries, Trump can’t make much progress in narrowing America’s huge trade deficit with the world’s second-biggest economy. 

They pointed out that China currently doesn’t export many high-technology goods to the U.S. now.

Andrew Polk, from Trivium China said of the U.S. tariffs, “The mentality of the Trump team is a little strange. They’re saying, ‘We’re going to tax exports from China where they want to be a global superpower.’ But that’s not really the area of leverage they have. Their real area of leverage is by restricting their own exports to China if they want to stop the industrial policy.”

He further added, “A much more powerful way to stop China from moving up the value chain is to stop selling them semiconductors. That’s a huge vulnerability, especially on semiconductors. Semiconductors are the basic building blocks for all kinds of technologies. That is where China’s worried.”

In 2015, Beijing unveiled its Made in China 2025 plan, which aims to make China a global leader in ten strategic industries including high-end machinery, aerospace and advanced rail equipment.

James Laurenceson, from the Australia-China Relations Institute, pointed out, “Faced with U.S. attempts to actively block its progress up the technology ladder, China won’t be content to wait until 2025 any more. Now it’ll want to achieve that level of competency ever earlier. So it may not formally rename it China 2023 but that will be the intent.”

Further, former IMF researcher, Louis Kuijs from Oxford Economics pointed out, “The strategy of the U.S. government is to try to strong-arm China into giving up pursuit of industrial policy by using tariffs. There is no way that China is going to give up on that. It is too much an inherent part of its development strategy.”

Trade fight causing U.S. businesses more pain

At the other end of the spectrum, American businesses would now be bracing for more pain that might come from the trade fight with China. 

Soon after the Trump administration unveiled its tariffs, U.S. economists warned that the measures could lead to higher prices and job losses in some industries.

All business and industry groups would now have to examine if the Chinese products announced on the tariff list impacts their supply chains and how higher costs from tariffs could affect their bottom lines.

Economists believe that the tariffs will hurt GDP by less than half of a percentage point. 

They pointed out that the tariffs are likely to hurt some of the sectors that the Trump administration is trying to protect, since the sectors depend on China for parts or assembly.

Farmers also raised concerns about the impact of China’s retaliation.

Agricultural trader Cargill, which is the largest U.S. private company, called for dialogue between Beijing and Washington so businesses, farmers and consumers would not be caught up in an all-out trade war.

Devry Boughner Vorwerk, a vice president at Cargill said, “Trade conflict... will lead to serious consequences for economic growth and job creation and hurt those that are most vulnerable across the globe.”

Meanwhile, a spokeswoman for grain trader Archer Daniels Midland said bilateral dialogue should be pursued, adding that China "continues to be an important export market for American food and agriculture.”

The Motor and Equipment Manufacturers Association, which represents car parts makers, said that the tariffs will “hurt U.S. companies, put jobs at risk, and negatively impact consumers."

The National Marine Manufacturers Association too reacted negatively, describing the tariffs as "bad trade policies that are piling up on top of each other.”

The association said that boat-makers are already facing higher costs due to U.S. tariffs on steel and aluminium and the newly announced tariffs will impact almost 300 parts.

Further, multinational corporations too are now worried about their future ability to do business in China, which is a massive market for them.

On Saturday, the Semiconductor Industry Association, which represents major American chipmakers including Intel and Qualcomm, said it was alarmed to find the U.S. government was now considering tariffs on computer chips imported from China.

The group said in a statement, "While the U.S. semiconductor industry shares the Trump administration's concerns about China's forced technology transfer and intellectual property practices, the proposed imposition of tariffs on semiconductors from China, most of which are actually researched, designed, and manufactured in the U.S., is counterproductive.”

Further, Boeing too is concerned as China is a critical market for the nation's single largest exporter.

Boeing garnered about 12.8 percent of its 2017 revenues from China and said it was now beginning to evaluate the tariffs' possible effects.

In September last year, Boeing said that it is expecting China to spend nearly $1.1 trillion over the next 20 years, by buying over 7,200 new airplanes.

Boeing spokesman Charles Bickers said, "We are assessing the impact these tariffs and any reciprocal action could have on our supply chain and commercial business. We will continue to engage with leaders in both countries to urge a productive dialogue to resolve trade differences, highlighting the mutual economic benefits of a strong and prosperous aerospace industry.”

Samm Sacks, a senior fellow in the Technology Policy Program at the Center for Strategic and International Studies pointed out that so far, companies with business in China have mostly kept low profiles, hoping the U.S. and China would strike a deal.

Sacks said, "Multinational companies [have been] doing their best to put their heads out and wait out the storm.”

Adding that now that the storm has hit, companies should be extra careful, especially when it comes to complying with Chinese regulations, considering that Beijing could punish an errant company in order to send a message to Washington.

Meanwhile, following the exchange of tit-for-tat tariffs, the Chinese state media on Saturday resorted to attacked America’s strategy. 

‘Back off from dangerous adventurism’

Echoing official comments that China would defend its interests in a trade war, the country’s official Xinhua news agency said in an editorial, "The wise man builds bridges, the fool builds walls.”

It added, “Following the path of expanding and opening up is China's best response to the trade dispute between China and the United States, and is also the responsibility that major countries should have to the world.”

Meanwhile, an editorial in the ruling Communist Party's official People's Daily condemned the Trump administration's "obsession with playing the disgraceful role of global economic disruptor.”

It said, "There is no winner in a trade war, and the U.S. instigation of a trade war is extremely destructive to global trade, economic globalization, multilateral trade systems and global production supply chains. The whole world will be picking up the bill for the mistaken acts of U.S. unilateralism."

A tabloid run by the People's Daily, The Global Times, called the U.S. move "an irresponsible act on behalf of the White House to disrupt international trade just to appeal to American voters who are convinced their president is fighting for them."

Calling Trump's administration "inconsistent and precarious," the official English-language China Daily said the measure was "a stark violation of the core spirit of recent trade talks between China and the United States and is set to backfire if Washington doesn't back off from its dangerous adventurism."

The editorial argued that China's stance had been consistent and said, "Given the frequent flip-flopping of the Donald Trump administration, it is still too early to conclude that a trade war will start. (China) welcomes dialogue and is not afraid of trade war threats."

Meanwhile, U.S. Trade Representative Ambassador Robert Lighthizer has stressed, "China’s government is aggressively working to undermine America’s high-tech industries and our economic leadership through unfair trade practices and industrial policies like 'Made in China 2025.’”

He added, “Technology and innovation are America’s greatest economic assets and President Trump rightfully recognizes that if we want our country to have a prosperous future, we must take a stand now to uphold fair trade and protect American competitiveness."