A long-threatened trade war between the US and China got underway on Friday as the US imposed tariffs on $34bn in Chinese goods. China has promised to levy its own tariffs immediately after on a similar quantity of US imports.
Minutes after the US tariffs went into effect at 12:01 Friday US time (0401 GMT), a spokesperson for China’s ministry of commerce said, “China promised not to fire the first shot, but in order to safeguard the country’s core interests as well as that of the people, it is forced to fight back,” according to Xinhua.
Ahead of the tariffs, Chinese state media published a series of editorials criticising the US and emphasising the country’s readiness for a trade war. Chinese companies and investors girded for the worst, while economists cautioned any impact on the economy would be minimal.
“If what the US wants is to escalate a trade war with China, then so be it. A little fighting may be the only way the Trump administration clears its mind and allows everyone to sober up,” the state-run Global Times said on Friday.
“The Trump administration is behaving like a gang of hoodlums with its shakedown of other countries, particularly China,” said an English-language article in the China Daily. On Thursday, a spokesperson for China’s ministry of commerce said the US will be “opening fire on the whole world and also opening fire on itself.”
China’s central banker said Trump’s promised tariffs on $50bn of Chinese goods – Friday’s $34bn to be followed by $16bn in a few weeks – would shave 0.2 percentage points off of China’s GDP and the “overall impact would be limited,” according to Xinhua.
Still, Chinese investors and companies were worried. The Shanghai Composite index fell 1.1%, after reaching more than a two-year low this week. Chinese manufacturers have already been hit by a strengthening yuan that has made exports more expensive.
“One of the biggest competitive advantages of Chinese exports is their low price. After tariffs are imposed, prices for Chinese made goods will rise and we’ll lose our comparative advantage,” said a representative for Sanhua Micro-Channel, which makes components for air conditioners in China’s eastern Zhejiang province.
The company said it had already moved some production to the US and Mexico and would likely move more. Others say they are turning their focus to Chinese consumers.
“China is a big market for us. If we can seize our own market, we will be less affected by the trade war,” said a spokesperson for Topsun, a furniture manufacturer in Zhejiang province.
Trump has threatened to raise tariffs on China to roughly the value of total Chinese exports to the US last year of $506bn. He told reporters aboard Air Force One on Thursday, “You have another 16 (billion dollars) in two weeks, and then, as you know, we have $200bn in abeyance and then after the $200bn, we have $300bn in abeyance. Ok? So we have 50 plus 200 plus almost 300.”
Analysts say tariffs are not the most effective way of putting pressure on China, which the US accuses of unfair trade practices and stealing intellectual property from US companies.
Syracuse University economics professor Mary Lovely and researcher Yang Liang found 87% of electronics products to be levied by US tariffs came from multinationals and joint ventures rather than Chinese firms.
China’s economy is no longer as dependent on exports. Domestic consumption now accounts for more than half of the country’s GDP. Exports to the US account for only 19% of all of China’s exports.
“The reciprocal tariffs on US$50bn of goods in both directions will have minimal impact in China,” Andy Rothman, an investment strategist at Matthews Asia, wrote in a blog this week. China’s tariffs on major US exports like soybeans, sorghum, and autos, target Republican areas ahead of US midterm elections. “The impact on the US political environment is, however, likely to be far greater,” he said.
One area that will be hurt by US tariffs is China’s high tech industries, in things like new energy vehicles, robotics and other forms of smart manufacturing, that form the country’s “Made in China 2025” industrial plan.
Cheng Dawei, a professor of international trade at Renmin University in Beijing says these industries are still in their early stages and need inputs from global supply chains.
“But the tariffs will bring double-lose results. China is never the only side to suffer,” Cheng said. “Imposing high tariffs definitely hurts China badly, but we will not be beaten down,” she said.
Additional reporting by Wang Xueying
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