US Initiates New Tariffs on $250 Billion Chinese Goods
And Threatens Further $267 Billion Tariffs If China Retaliates
Risk sentiment was buoyed last week on news that Washington had invited officials from Beijing to restart trade talks, aimed at dialing back the trade conflict between the two economic superpowers. However, the trade war story took another turn this week as the US administration announced that it had implemented 10% trade tariffs on roughly $200 billion worth of Chinese imports to the US.
$250 Billion of Chinese Goods Now Under Tariff
The move had been long signaled by Trump, who ordered the planning of such tariffs back in early summer and was due to be a levy of 25%. The tariff will instead begin at 10% and rise to 25% by January 1st. These new tariffs mark a significant escalation in the trade war between the US and China following on from the first taxes of 25% on $50 billion of Chinese goods from July 6th and 25% on $34 billion of Chinese products from August 23rd. The total value of Chinese goods under tariffs is now at $250 billion.
Trump Threatens Further $267 Billion of Tariffs
Furthermore, the US announced that if China retaliates, a third wave of tariffs will be implemented on another $267 billion of Chinese goods, taking the total tariff value to over $500 billion. On this matter, Trump said, “If China takes retaliatory action against our farmers or other industries, we will immediately pursue phase three, which is tariffs on approximately $267bn of additional imports.”
Trump Looking To Score Points Ahead of Elections
As ever, Trump’s language is emotionally charged and aimed at scoring political points, invoking a sense of camaraderie with the US farming industry ahead of the upcoming US midterm elections. This is important for Trump as the farming sector was where he gained a significant amount of votes during his election. However, the latest polls show that support for Trump has waned in this sector with many feeling that they have come off worse as a result of his tariffs.
The goods placed under tariff in this latest move by the US include handbags, rice, and textile while items such as smartwatches and some other consumer items have been removed.
Quotes From The Statement
In the statement released along with the decision, Trump said that China’s trade practices “plainly constitute a grave threat to the long-term health and prosperity of the United States economy.” The president also added that “For months, we have urged China to change these unfair practices, and give fair and reciprocal treatment to American companies. “We have been very clear about the type of changes that need to be made, and we have given China every opportunity to treat us more fairly. But, so far, China has been unwilling to change its practices.”
Chinese Response Awaited
These latest tariffs have now thrown the prospect of renewed negotiation into question. China has been evident in the past about its willingness to retaliate in the face of continued US hostility. However, it has denied initial allegations that it is planning a retaliatory tariff on $45 billion of US goods. Perhaps at this stage, the threat of a further $267 billion worth of products coming under tariff is acting as a deterrent, or probably China is thinking that if it can get back to the negotiating table, then it might be able to stop the tariff from rising to 25% in January. For now, the market awaits an official response from Beijing. Chinese VP Liu He has reportedly called a meeting in Beijing to discuss the new tariffs while a senior Chinese securities market official, Fang Xinghai told reporters that in his view, the US tariffs would not be successful as China has more than enough fiscal and monetary capacity to deal with their impact.
After to new record highs last month, the S&P has since been in consolidation mode. However, the retest of the broken 2877.62 previous high has held as support so far, with price bouncing off the level and the rising trend line from mid-summer lows. While this low remains in place, the focus is on further upside.