China to hit $75bn of US goods with additional tariffs
China has announced it will apply additional tariffs of between 5 and 10 per cent on $75bn of US imports from September, marking the latest escalation in an increasingly bitter trade war between the world’s two largest economies.
Beijing will add the tariffs on imports to a list of products including frozen pork and nuts from September 1, and on a separate set of other products including some kinds of fabrics and food flavourings from December 15, the finance ministry said on its website.
China also imposed a tariff on US-produced crude oil for the first time. The 5 per cent duty is likely to redirect flows in the seaborne oil market. Additionally, yellow soyabeans, one of the main US exports to China, will be hit with a further 5 per cent duty from September that adds to a 25 per cent tariff imposed last year, according to the finance ministry statement.
The move is Beijing’s response to Donald Trump’s decision earlier this month to impose 10 per cent tariffs on $300bn more of Chinese imports in September, before announcing that he would delay imposing the duties on about half of those products until December.
China’s retaliation was anticipated, but will nevertheless add to concerns that mounting trade tensions could plunge the global economy into a severe downturn. Trade is expected to feature heavily in discussions between world leaders at the G7 summit in Biarritz, France, over the coming weekend.
Mr Trump, the US president, has publicly continued to express optimism that he would prevail in the economic stand-off with Beijing, including declaring himself the “chosen one” in holding China accountable for engaging in unfair trade practices.
Peter Navarro, the White House manufacturing adviser, was defiant on Friday in response to China’s move. “I think the risk here for China, when it does things like this, is simply to galvanise support even more for the president”, he told Fox Business Network.
Mr Trump and his top advisers have, however, shown signs of growing anxiety about the economic fallout from the protracted trade war, calling for increasingly aggressive monetary easing by the Federal Reserve and considering a wide range of stimulus measures, including tax cuts. Face-to-face negotiations between top US and Chinese officials are expected to resume in September, but there is little hope of a major breakthrough.
“It goes to show that there is no trade truce coming in this battle anytime soon,” said David Rosenberg, chief economist and strategist at Gluskin Sheff, a wealth management firm. “We have to get used to these ongoing rounds of uncertainty, which are actually going to impair global trade flows and capital spending from the business sector.”
“One thing we know about uncertainty is that it leads to a desire among private sector participants to boost savings and increase liquidity, which comes at the expense of global aggregate demand growth,” he added.
China announced the retaliatory tariffs on Friday in a statement from its state council.
“The US measures have led to the continuous escalation of Sino-US economic and trade frictions, which have greatly harmed the interests of China, the US and other countries,” Beijing said. “China reiterates that, for China and the US, co-operation is the only correct choice.”
Brent crude, the international oil benchmark, fell more than 2 per cent to $58.52 a barrel on the news. West Texas Intermediate, the US crude oil benchmark, declined 2 per cent to $54.27 a barrel.
The world’s largest oil importer, China was also the top destination for US crude exports in the first seven months of 2018. Then it temporarily halted purchases after the trade war escalated in July 2018.
Shipments later resumed, averaging more than 200,000 barrels per day in July, said Matt Smith, director of commodity research at Clipper Data, a vessel tracking service.
“We think the volatility of the flows is a reflection of the ebb and flow of sentiment towards the trade war,” Mr Smith said. “Crude is one of the few things left that China can really place a tariff on.”
Investors once again piled into US Treasuries following the tariff announcement, sending the yield on the two-year bill lower to 1.56 per cent. The yield on the 10-year note also fell 3.9 basis points to 1.57 per cent. Yields move inversely to price. US stocks sold off, with the S&P 500 down 0.24 per cent.
For Evan Brown, the head of multi-asset strategy at UBS Asset Management, the move from China was well-telegraphed, but still brings enormous uncertainty.
“Markets really don’t know how to price these risks,” he said. “We haven’t dealt with this kind of increase in protectionism in the modern era.”
One question on his mind is whether companies will begin to cut back on labour as well, he said. “If we see a real deterioration in the labour market, we’ll see concerns about a recession rise and be reflected in the markets.”