China-US Trade War

President Trump Threatens to Increase Tariffs from 10 to 25 Percent

President Trump Threatens to Increase Tariffs from 10 to 25 Percent

President Trump Threatens to Increase Tariffs from 10 to 25 Percent

On the 6th of May, the US President, Donald Trump, vowed to increase the tariffs on Chinese goods from 10 to 25 percent by the end of the week after China had gone back on key elements and obligations discussed in the trade negotiations.    

“For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday. 325 Billion Dollars of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!”

Sourced from President Trump’s Twitter account.

The global financial markets were shaken by President Trump’s abrupt decision to increase tariffs by an additional 15 percent, as traders, investors and economists now face the possibility of steeper tariffs.

The US President’s warning to increase tariffs on imported Chinese goods is amplifying the concerns surrounding the US-China trade war which is having a domino effect on the global financial markets.

China-US Trade War Continues

As a result of President Trump’s tweet on Sunday, the US Stock prices plummeted on Monday the 6th of May causing the Dow Jones Industrial Average to drop more than 400 points. Businesses that regularly trade with China have been affected the most by the trade dispute.

Robert Lighthizer, the US Trade Representative said:

“Over the course of the last week or so we have seen … an erosion in commitments by China, that in our view is unacceptable… We’re not breaking off talks at this point. But for now … come Friday there will be tariffs in place.”

Taken from The New York Times.

Head of trading at SPI Asset Management, Stephen Innes, said:

“I think there’s a little bit of brinkmanship on the political side going on here. I think perhaps the President is using the surging markets in the US as leverage to put the screws to China.”

Click here to watch the full news report.

Steven Mnuchin, the US Treasury Secretary said: “They were trying to go back on language that had been previously negotiated, very clear language, that had the potential of changing the deal dramatically, The entire economic team are completely unified and recommended to the president to move forward with tariffs if we are not able to conclude a deal by the end of the week.”

Taken from Aljazeera.com.

China has continuously emphasized that it has intentions to alter its economic policies regardless of the disputes it is facing with the US. However, when it comes to laws China has recently ratified some and modified others, something which some analysts interpret as attempts by China to focus on the concerns raised by the US and the EU.

Last month, China ratified a Foreign Investment Law, which promises higher levels of security and a way of safeguarding foreign businesses looking to invest in China. Additionally, three pieces of legislation passed through the Chinese Government which ensure protections for and against trade information, technology theft and penalties for breaching trademark laws.

President Donald Trump’s decision has to potential to swiftly disintegrate the trade war truce that had been agreed to five months ago. The trade war has resulted in losses of billions of US dollars for both of the world’s largest economies, which has had a knock-on effect for the expansion of the global economy, has hindered many manufacturing sectors and has weakened US agriculture.

The US wants China to alter its economic policies, such as measures to safeguard intellectual property and ways of bringing an end to technology theft. Along with these areas of concern the Trump administration is requesting greater access for American firms to trade and do business with Chinese markets, and to hike up the number of imports China buys from the US.

On May 7th, China confirmed that Liu He, the Chinese Vice Premier will attend trade negotiations and talks in Washington later on in the week, following the US President’s pledge to increase tariffs on Chinese imports by a further 15 percent by the end of the week which sparked uncertainty surrounding the outcome of the trade talks.

If the Trump administration proceeds with the threats, it would result in tariffs of 25 percent being imposed on 200 billion dollars’ worth of Chinese imports.  

Last year the US imported over 500 billion dollars’ worth of Chinese goods and exported approximately 100 billion dollars’ worth, resulting in a trade deficit of around 400 billion USD.

What was the stock market’s response to the news?

In the US Stock market futures slumped as Dow futures dropped by over 500 points. The Chinese yuan also plummeted.

On May the 7th Christine Lagarde, the International Monetary Fund’s (IMF) Managing Director and Chairwoman cautioned that President Trump’s pledge to increase tariffs on Chinese goods could cause major damage to the global economy as a whole. During a speech at the Finance Ministry in France Mrs. Lagarde said:

International Monetary Fund (IMF)

“We thought this threat was waning and relations were improving, and we were moving toward an agreement. We hope that is still the case but today rumors, tweets and comments are not very favourable. For us at the IMF, it’s imperative that trade tensions are resolved in a way satisfying for everyone because clearly tensions between the United States and China are the threat to the global economy.”

Taken from The Guardian.  

The American Chemistry Council’s President, Cal Dooley, cautions that the US economy would be damaged by the steep rise in tariffs on Chinese imports:

“China supplies the United States with several chemicals which are not available anywhere else and which are critical inputs to U.S. manufacturing. China is also the third-largest export market for U.S. chemicals manufacturers. Future growth for our industry depends on a strong trading relationship with China and a trade policy that creates certainty and predictability for investors – not a looming threat of more or higher tariffs.”

“We are starting to see signs that the tariffs are disrupting supply chains, cutting off markets, and eroding U.S. chemical manufacturing competitiveness. Although chemical imports from China grew by 22.7 percent in 2018, the retaliatory tariffs significantly dampened U.S. chemical exports to China, resulting in only a 2.7 percent increase in 2018 – nearly tripling the chemicals trade deficit, from $1.4 billion to $4.0 billion.”

Taken from The Guardian.  

Tim Quinlan, the senior economist at Wells Fargo Securities suggests that the US will endure the consequences of the trade war with China:

“It’s fair to say that a trade war with China alone is not going to bring the U.S. economy to its knees…. Generalized weakness in financial markets last December would represent a tightening in financial conditions that could lead to slower economic growth.”

Taken from Yahoo Finance.

Final word

China’s Vice Premier, Liu He, is scheduled to visit the US for further trade discussions later this week. Should negotiations breakdown further after this period then US tariffs on goods imported from China will rise to 25 percent.

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