The world’s two largest economies slid deeper into a trade conflict Friday, casting a shadow over the global growth outlook.
In Beijing, policymakers are digging in for what could be a protracted fight — one they say they won’t be the aggressor in. The U.S. began imposing additional steep tariffs on Chinese imports as of Friday and Beijing responded in kind. With further tit-for-tat levies already threatened, this week could mark the start of a new and dangerous phase.
The U.S. imposition of tariffs on $34 billion of China’s exports will not only hurt China, but the U.S. itself and the rest of the world, Gao Feng, China’s Commerce Ministry spokesman, said at a regular press conference in Beijing on Thursday. China’s retaliatory tariffs will become effective “immediately” after the U.S. acts, according to the customs authority.
Here’s a rundown of the key facts about China’s position in the conflict:
Q: What goods are to be targeted?
A: On June 15, President Donald Trump said the U.S. would begin charging additional duties of 25 percent on $50 billion worth of Chinese imports in response to what he says is theft of American intellectual property. That’s split into two rounds — $34 billion now and $16 billion later.
China responded with a statement saying it would fight back with “equal scale, equal intensity.” Beijing is targeting soybeans, corn, wheat, rice, sorghum, beef, pork, poultry, fish, diary products, nuts and vegetables, and autos in its first round of counter measures.
Q: When will these actually start being levied?
A: The first wave of U.S. tariffs on $34 billion of Chinese exports will take effect on July 6, according to a statement from the U.S. Trade Representative, which didn’t specify a time. China’s response of additional tariffs on U.S. goods will become effective “immediately” thereafter. If the U.S. tariffs come in at midnight Friday U.S. time, that’s midday Friday in Beijing.
Q: How will it be implemented?
A: China’s customs service will adjust their systems so the new tariffs will start being charged after the U.S. does. When products on the list for extra tariffs are declared to customs, the importer will pay the additional levies.
Declaration rules vary for different products, according to Xu Qing, a saleswoman at Reg’s, a logistics company based in Shanghai which provides customs clearance service to Chinese importers. Time-sensitive products such as fresh seafood and fruits can be declared before arrival, while for products like auto parts and soybeans, that can only be done after arriving on the docks.
Q: Are markets ready?
A: Chinese stocks have taken a beating in recent weeks, entering a bear market, as concerns about the trade-war have mingled with worries about how an ongoing debt-control campaign will feed through into the outlook for economic growth.
The benchmark Chinese stock index closed 0.9 percent down on Thursday, falling for a second day and extending the loss for the year to more than 17 percent.
“All eyes are on the Trump administration’s move to impose the 25 percent additional tariff on Friday and what’s next after that,” said Zhang Gang, Central China Securities Holdings strategist in Shanghai. “The trade war is a constant overhang for the markets and I don’t see it being removed any time soon.”
The yuan was basically unchanged on Thursday despite the strongest daily reference rate since October. China’s currency suffered its worst quarter since 1994 in the three months through June, raising questions over whether the government was deliberately letting it slide as a tactic in the trade war.
Q: What can the real-world impact be?
A: The tariffs are already having an effect. As an example, Chinese companies are reselling U.S. soybeans, and Chinese companies are expected to cancel most of the remaining soybeans they have committed to buy from the U.S. in the year ending Aug. 31, once the extra tariffs take effect.
Xu, the saleswoman at the logistics company, said some of her clients are thinking about diverting goods to other nations, importing less from the U.S., or bargaining with their American sources to see if they will lower prices to compensate for rising costs.
Q: In China, what will the economic impact be?
A: It depends on what happens. In the scenario where the U.S. and China just stick to this round of tariffs — $50 billion of imports — and go no further, then the drag on China’s economy would be 0.2 percentage point of growth in 2019, according to Bloomberg Economics’ calculations.
If things escalate, then the hit will be bigger, cutting as much as half a percentage point from growth. China’s economy grew by 6.9 percent in 2017 and the government has set a target of 6.5 percent for the current year.
“The tail risk of a Sino-US trade war is getting fatter,” said Chi Lo, greater China senior economist at BNP Paribas Asset Management in Hong Kong. “The two sides may misjudge each other’s intentions when patriotism takes over rationality, and push themselves into an escalating series of attacks and retaliation.”
Q: What about Asian supply chains?
A: It may not be China that stands to lose the most if the U.S. imposes tariffs, according to Bloomberg’s chief economist Tom Orlik. The high share of foreign value-added in China’s sales to the U.S. means the costs will be spread across Asian neighbors that supply components. If China’s exports were to drop 10 percent, Taiwan, Malaysia, and South Korea would all suffer a markedly larger blow to growth than China.
According to the commerce ministry’s Gao, $20 billion of the $34 billion in goods to be hit with U.S. tariffs from Friday are produced by foreign companies, including from the U.S.