Trade tensions between the world’s two largest economies have been dramatically ratcheted up today as the US has confirmed higher tariffs on imports from China covering a wide range of products, including electronic chips and automotive components.
The move by the US government means that around USD200bn worth of Chinese products will now face an import duty of 25% rather than 10% – a step that had been postponed while trade negotiations between the two countries took place. US importing companies pay the taxes and face the dilemma of whether or not to pass on the additional cost to consumers or business customers in their supply chain. Chinese companies can opt to take some of the hit and reimburse importers via lower wholesale transfer prices.
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The higher tariffs only apply from today, so goods in transit being shipped from China won’t be impacted until they hit US ports, potentially leaving room for further negotiations over the coming days.
The latest move comes after painstaking trade negotiations between government officials from the two countries had appeared to be making progress. However, discussions are said to have fallen apart last weekend, when China called for substantial changes to the negotiating text that both countries had been using as a blueprint for a new trade deal. That provoked an angry response on Twitter from President Trump. Reports suggest that a trade deal could still eventually emerge, but questions will now be asked about the details – such as enforcing rules over industrial policy and intellectual property protection – that have proved sticking points in the negotiations.
The Chinese government has said it is preparing countermeasures, which raises the possibility of retaliatory tariffs on US exports to China and a further ratcheting up of tensions.
President Trump has also threatened to expand tariffs to all Chinese imports, a move which could increase prices on a wide range of consumer goods in the US. He has said that he wants to reduce the US’s huge trade deficit with China.
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