China almost instantly vowed to implement the “necessary countermeasures” in response to the United States’ decision to increase tariffs on US$200 billion of Chinese goods to 25 per cent on Friday, reiterating its tough stance in the trade war.
“China deeply regrets that the US has decided to increase the tariffs from 10 per cent to 25 per cent on US$200 billion worth of China goods exported to the United States,” the Ministry of Commerce said in a statement released minutes after the new US tariff level came into effect.
“We’ll have no choice but to take the necessary countermeasures.”
The statement did not specify what steps would be implemented after the US followed through with the threat issued by US President Donald Trump earlier this week.
“We hope to solve the existing problems through cooperation and negotiations with mutual efforts from both sides,” the short statement added.
The move, in accordance with a document registered by the Office of the United States Trade Representative (USTR), marks a serious escalation in the US-China trade war and stands to have far-reaching economic impact on exporters and importers from both countries.
“The increase in additional import duties for Chinese goods covered by the September 21, 2018, Federal Register notice, as amended, is now effective on May 10, 2019. Effective with respect to goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12.01am eastern standard time on May 10, 2019, and exported to the United States on or after May 10, 2019, the rate of additional duties on imported articles classified in a subheading covered by the September 21, 2018 Federal Register notice, as amended, will be 25 per cent ad valorem,” read a notice filed on the website of the Cargo Systems Messaging Service, operated by US Customs and Border Protection.
Trump announced the decision to increase the tariffs on Sunday in response to claims that China had reneged on some of the commitments that had been made during 10 previous rounds of trade negotiations.
China deeply regrets that the US has decided to increase the tariffs from 10 per cent to 25 per cent on US$200 billion worth of China goods exported to the United States. We’ll have no choice but to take necessary countermeasures. – China’s Ministry of Commerce
US importers now face higher costs of purchases, US manufacturers in China now face challenges in getting their goods back to their home market, while Chinese exporters now have to pay an extra 15 per cent tariff on good sold to US buyers.
Vice-Premier Liu He has been in Washington since Thursday attending a truncated 11th round of talks. The talks began at 5pm local time, but Liu left the USTR offices at 6.25pm, meaning talks were much shorter than the usual marathon negotiating sessions.
Liu was then expected to attend a dinner with USTR Robert Lighthizer, and while Trump earlier spoke of hopes that a deal could be achieved, the tariff increases were officially activated at 12.01pm Hong Kong time on Friday.
Talks will resume on Friday morning in Washington, however Trump suggested that China had proposed delaying the negotiation.
“We put the tariffs on, we made the statement, and then they upped the meeting. ‘How about let’s go back to Thursday?’,” Trump said, adding that Chinese President Xi Jinping had sent him a “beautiful letter”.
Companies in Hong Kong that rely on trade between China and the US have voiced frustration at the fact that the talks, which had seemingly been moving swiftly towards a deal, have stumbled. It has been suggested that the chances of a deal boil down to a call or meeting between Trump and Xi.
“From a factory owners’ point of view, the hardest thing is uncertainty,” said Paul Walsh, CEO of Newtimes Development, a Hong Kong-based garment sourcing company. “With grey areas, it is hard to plan. You put in place plans and then get a tweet which can change everything. There’s a sense of fatigue, people want to be able to make plans.”
Walsh described the tariff increase to 25 per cent as “a game-changer” and said he expected it to hasten the exodus of manufacturing out of China.
Farouk Merzougui, the chief financial officer at luxury iPhone accessory manufacturer Native Union which makes products in China for export to Western markets, expects the bulk of the cost to be borne by the US consumer, with the prices of goods rising as a result of the extra tariffs, but also believes there will be business casualties from the increase.
“For most companies, whatever their industries, having 25 per cent additional cost is very tough. Some cannot survive, some will increase prices. Whatever industry you’re in, not many companies are making a 25 per cent bottom line. It is a direct impact, it is very challenging,” he said, adding that the company is exploring other production facilities in Southeast Asia.
The Sword of Trump-ocles hangs over the global markets with tariffs increases. It leaves both negotiating teams precious little time to come up with something that satisfies both sides. – Jeffrey Halley
Amit Gupta, an apparel industry consultant for Impactiva Quality Optimisation in Dongguan, Guangdong, said that he too expects a shift away from China, but said that it will be temporary and partial.
“This is like a pendulum, it is not really like what people are thinking. Maybe 30 per cent of the garment business will move from China as a result, not 70 per cent. If you move to Cambodia, you still need to import the raw materials from China, so you end up paying the same cost, for late deliveries and your product takes longer to make,” he said at the Sourcing Summit, a supply chain forum held in Hong Kong this week.
Mats Harborn, president of the European Union Chamber of Commerce in China, described the tariffs as “ridiculous”.
“European companies are watching aghast as the US and China play Russian roulette with the world economy,” Harborn said.
However, not all businesses were disappointed with the increase in tariffs.
“25 per cent garlic tariffs from China are now in effect and the US domestics garlic industry couldn’t be more thrilled,” said Ken Christopher, executive vice-president of Christopher Ranch, one of the largest garlic producers in the US.
“Tariffs are neither great for the macroeconomic situation of the US and aren’t a long-term solution, but we’re grateful for immediate redress for a major issue – constant Chinese dumping on US shores of cheap and illegally dumped Chinese garlic.”
Economists are expecting a reaction from markets to the tariff increases.
“The Sword of Trump-ocles hangs over the global markets with tariffs increases. It leaves both negotiating teams precious little time to come up with something that satisfies both sides. The markets themselves appear to have settled into a cautious wait-and-see mode, but the peace is fragile, and it won’t take much today to panic investors into heading for the exit door en masse,” said Jeffrey Halley, senior market analyst for Asia-Pacific at Oanda, a foreign exchange company.
Chief China economist at Deutsche Bank, Zhiwei Zhang, said that “we continue to expect the two sides to reach a trade deal eventually, but this is unlikely to happen in the short term as the war is not painful enough for either side”.
Nomura analysts, meanwhile, said that the escalation brought the negotiations “into uncharted territory”.
“On one gauge, economic policy uncertainty in China and the US has eased this year from very high levels in the fourth quarter of 2018. Delays in reaching an agreement and a return to tit-for-tat trade protectionism could lift this gauge back to near-record highs, which could hurt business confidence and investment,” they wrote in a note.
