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American Shipper

China ‘forced’ into tariff counterattacks

The Trump administration and Beijing have fired the first shots in a trade war that has been brewing for months.

   The United States on Friday officially adopted tariffs on a long list of goods produced in China, prompting swift retaliation from Beijing.
   Just after midnight in Washington, D.C., President Donald Trump and his administration imposed a 25 percent duty on a long list of Chinese products with a yearly import value of roughly $34 billion, the first of two separate possible sets of tariffs on imports from China. The second tranche, which is still subject to a public notice and comment period, comprises items with an annual import value of roughly $16 billion.
   Both sets of U.S. tariffs are aimed primarily at products identified as containing technologies that benefit from China’s “Made in China 2025” industrial policy.
   China waited for the U.S. measures to come into force before immediately pushing back, levying an additional 25 percent tariff on U.S. exports ranging from agricultural goods like soybeans to manufactured products like automobiles.
   Although both actions were largely expected after months of public back-and-forth between Trump and trade officials in China, what remains to be seen is whether the so-called trade war will escalate further.
   China’s Ministry of Commerce said in a statement shortly after the official adoption of the U.S. tariffs, “The United States violated the WTO rules and launched the largest trade war in economic history to date. This kind of taxation is a typical trade bullyingism, which is seriously jeopardizing the global industrial chain and value chain security, hindering the pace of global economic recovery, triggering global market turmoil, and will affect more innocent multinational corporations, general enterprises and ordinary countries. Consumers will not only be helpless, but will also harm the interests of American businesses and people.
   “The Chinese side promised not to fire the first shot, but in order to defend the core interests of the country and the interests of the people, they had to be forced to make the necessary counterattacks,” the ministry added. “We will promptly inform the WTO about the situation and work with countries around the world to jointly safeguard free trade and the multilateral system.”
   Trump first announced his administration’s intention to file the first two sets of tariffs totaling $50 billion in Chinese goods back in March, shortly after formally signing off on broad global tariffs on imports of steel and aluminum.
   MOFCOM fired back in April, publishing its own list of products to be targeted for retaliatory tariffs, but just a few weeks ago, Trump threatened to up the ante even further, directing U.S. Trade Representative Robert Lighthizer to identify another $200 billion worth of Chinese goods that could be subjected to an additional 10 percent tariff.
   Aside from a brief selloff last week, global stock markets haven’t seen much movement in either direction as a result of these first trade war volleys, primarily because the actions were anticipated.
   If the conflict were to escalate further, however, economists and analysts warn the effects could be damaging to workers, consumers and the overall economies of both nations.
   And fears of escalation are by no means unwarranted. According to a report from Bloomberg News, Trump on Thursday evening “threatened to impose on every single Chinese import into America.”
   Analysts estimate the final list could cover more than $500 billion in annual imports from China, which is more than the U.S. bought from China last year.
   Trump and members of his administration have long argued that the United States has been treated unfairly on trade, especially by China.
   Asked about the potential impact of a protracted trade war with China on the U.S. stock market, Commerce Secretary Wilbur Ross told CNBC earlier this week, “The president is trying to fix long-term problems that should have been dealt with long time ago [and] weren’t. [T]here obviously is going to be some pulling and tugging as we try to deal with very serious problems. So there will be some hiccups along the way, but the fact remains the numbers are very small.”
   The difficulty for investors — not to mention shippers and freight transportation providers — is that they have no way of knowing exactly how many products will ultimately be targeted and how long the tariffs will remain in place.
   The administration has railed against what it considers to be unfair trade practices on the part of the Chinese government, claiming the U.S. has been “losing” on trade for year, but hasn’t exactly been clear in terms of what “winning” looks like.
   If the goal is to get Beijing to reduce or eliminate all tariffs and other trade related barriers, as well as protect U.S. intellectual property rights, that could be a tough — and lengthy — battle.
   According to London-based shipping consultancy Drewry, the United States’ tit-for-tat tariff battle with China has the potential to be “very damaging” for the container shipping industry at large, but it’s not time to hit the panic button just yet.
   “In the worst-case scenario, Drewry calculates that as much as 1.8 million TEU, or nearly 1 percent of world loaded traffic, could be lost to the market over a period of time,” the firm said in its latest quarterly Container Forecaster report.
   Drewry was quick to point out, however, that absent any further escalation — i.e. with both sides imposing the current tariffs on just $34 billion in annual goods — the overall impact to global shipping volumes “would be relatively insignificant at around 200,000 TEU.”
   “The current risk threat to container demand is relatively low, even when factoring in tit-for-tat measures and disputes with other trading partners, but there is clearly the potential for matters to get much darker if additional tariffs are forthcoming,” the firm said. “Perhaps the biggest risk is the unpredictability of it all and the potential confidence knock it will give to the world economy, just when it seems to be finding its feet.”
   Or as Louis Kuijs, chief Asia economist at Oxford Economics, put it in an interview with Bloomberg, “There is no obvious end to this.”

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