Moderate Chinese retaliation – but keeping the powder dry
Trump announces new trade measures against China
The Trump administration yesterday announced plans to impose tariffs on up to USD60bn of imports from China. The tariffs will target the ten focus sectors for China identified in the Chinese authorities' strategy ‘Made in China 2025' (see table below). The White House has given the US Trade Representative 15 days to identify specific goods that will be subject to tariffs. Following this period, there will be a 30-day period for public comment. Hence, the formal implementation of the tariffs will most likely be in 45 days. Furthermore, President Trump has instructed the US Treasury to come up with a plan to impose new restrictions on Chinese investment in areas such as those below within 60 days. The new measures are designed to penalise China for trade practices that the Trump administration says involve stealing American companies' intellectual property.
Overnight, China responded strong verbally but soft in actual retaliatory measures. The Chinese Ambassador to the US Cui Tiankai said, ‘If somebody imposes a trade war on us, we'll fight to the end'. China also outlined plans to put tariffs on 128 products accounting for USD3bn in imports including a 15% tariff on US steel pipes, fresh fruit and wine and a 25% tariff on pork and recycled aluminium. This is a very measured reaction as USD3bn is a drop in the ocean out of the USD131bn the US exports to China every year. Also, the new tariffs do not include soybeans, sorghum and aircrafts, which could hurt Trump more. However, the retaliation was not to the news from Trump yesterday of the tariffs on USD60bn of Chinese goods. Instead, according to the Chinese Commerce Ministry, it is a reaction to the US tariffs on steel and aluminium announced a few weeks ago.
China is thus keeping its powder dry still but is likely to target soybeans and aircrafts in a new round of retaliatory steps when Trump announces his specific measures over the next 15 days. In Research: 10 areas where China could retaliate vs US measures, 15 March 2018, we also point to other areas China could target.
While important on a political level, the direct effect on Chinese or US GDP should not be overestimated. Trump is targeting USD60bn of Chinese goods, which corresponds to 10% of Chinese exports to the US. However, this is only 0.5% of Chinese GDP, which reached USD12trn in 2017.
Author
Danske Research Team
Danske Bank A/S
Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.
