Beijing vows to strike back against tariffs on US$34 billion worth of Chinese goods

NEW YORK(TIP): The big question is now that the first shots have been fired, what goods will be affected, who will pay the price and what could happen next?

China’s Ministry of Commerce, on July 5 (July 6 in China) said China will fight back against the US and report to the World Trade Organisation.

The remarks were in response to Washington’s decision to impose 25 per cent duties on a similar amount of Chinese imports, which also came into effect on Friday.

US President Donald Trump had threatened to target another US$400 billion in Chinese products with tariffs if Beijing continued to hit back.

On top of that, each country has prepared a second tariff list of goods worth about US$16 billion. The effective dates are pending as the office of the US trade representative is in the midst of a public comment period on its list.

The trade war became official after Trump repeatedly said he wanted to reverse the United States’ massive trade deficit with China, which rose to about US$375 billion last year. That number is US$100 billion higher than China’s own calculation.

In an updated list published on June 15, Washington dropped many China-made consumer goods, such as TVs and flat panel screens, and added more intermediary products like semiconductors and plastics, after opposition during a public hearing in May.

The second tariff list, which is still under review, focuses particularly on “Made in China 2025”, a Chinese industrial policy aimed at getting ahead in hi-tech industries. It includes electronic integrated circuits and the machines that produce them.

Washington has dropped many China-made consumer goods, such as TVs and flat panel screens, and added more intermediary products like semiconductors and plastics to its tariff list. Photo: Reuters

China struck back in April with a list of US$50 billion worth of US imports, many of which were agricultural products. Beijing later removed US$16.3 billion worth of US aircraft from the list and added more food such as fish and nuts.

The primary US goods affected are soybeans and vehicles, while it is mostly Chinese industrial goods hit by US tariffs.

Who bears the brunt of these rounds of tariffs? Eventually consumers.

Analysts said imposing tariffs on Chinese goods such as semiconductors would eventually increase prices for American consumers because they were key components of electronic products. And it’s not an easy business decision for US manufacturers to shift sourcing after tariffs are in place.

“Alternative sources do exist for most of the Chinese products on the targeted list, but less expensive products purchased by less affluent consumers are likely to see larger price hikes as manufacturers substitute more expensive parts for Chinese inputs facing tariffs,” Mary Lovely, a senior fellow at the Washington-based Peterson Institute for International Economics, wrote.

“These consumers may not see much difference in performance due to one higher-quality part, but they are likely to see a difference at the cash register.”

Chinese consumers, on the other hand, could pay higher prices for imported seafood and fruit.

It is just the beginning. What happens in the longer run will impact economic policies of many countries across the world.