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Analysis, Economics

The great trade war has started

The United States imposed 25 percent tariffs on Chinese imports after midnight Thursday, firing the first salvo in a trade war that can see the world engulfed in reciprocal tariffs.


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Updated: July 9, 2018

US President Donald Trump confirmed Thursday afternoon that levies against $34 billion worth of Chinese imports will kick in as scheduled. The duties were confirmed to start at 12:01 am Friday, according to the US Trade Representative Office.

The Trump administration’s first round of additional tariffs targets Chinese goods from industries including aerospace, IT, auto parts and medical instruments.

As well as the duties on $34 billion of Chinese products, additional tariffs on another group of $16 billion in Chinese goods will undergo further review in a public notice and comment process in the US.

The additional US tariffs will likely target Chinese goods from a range of sectors including aerospace, information technology, auto parts and medical instruments.

Beijing has pledged to reciprocate with tariff of the same value immediately after the US tariffs take effect. Some of the goods China will target include farm produce, autos and aquatic products.

The US move pushed China to fight back, according to the China Daily, and later on Friday it levied tariffs on 545 items of US goods with around the same value, including vehicles and agricultural and aquatic products. Those tariffs also took effect on Friday.

Chinese Protests 

The US has ignited the largest trade war in economic history, as additional tariffs on Chinese goods violate World Trade Organization rules and represent a typical “trade bully”, posing a grave threat to the global industrial value chain, according to a statement by the Ministry of Commerce.

The ministry also said in a statement later on Friday that China has lodged a tariff case against the US with the WTO.

Foreign Ministry spokesman Lu Kang said the US action will hamper global economic recovery and trigger global market turmoil, dealing a blow to many multinationals, small and medium-sized enterprises and ordinary consumers.

Li Daokui, an economist at Tsinghua University, said the real risk of a trade war is that it could cause global free trade flows to deteriorate and set off a chain reaction hindering economic globalization.

Li said industries like consumer goods, electronics and manufacturing would be mostly affected in China, but “the impacts are controllable”. Moreover, the tariff increase on Chinese goods will eventually be passed on to US customers who have more reliance on China-made products, Li added.

Asia braces for blowback

A DBS analysis shows that Taiwan, Malaysia, South Korea and Singapore are the economies most at risk in Asia, based on trade openness and exposure to supply chains, according to the Straits Times. 

South Korea could see a drag of 0.4 per cent on growth this year; Malaysia and Taiwan could lose 0.6 per cent, and Singapore 0.8 per cent. And the impact would be roughly double next year.

OECD data – which breaks down value addition embodied in Chinese exports by its source country – shows Taiwan as the most exposed economy in Asia with more than 8 per cent of GDP, followed by Malaysia at 6 per cent, South Korea, Hong Kong and Singapore at 4 per cent to 5 per cent, Philippines, Thailand and Vietnam at around 3 per cent, and Australia, Japan and Indonesia at around 2 per cent.

There are other variations to consider. For instance, the US and China are Hong Kong’s major economic partners, but its economy is dominated by services, which are not subject to tariffs. An economy such as Vietnam’s, reliant on manufacturing, could feel more pain.

The Korea Herald reports that South Korea is bracing for the impact of the opening blows in the United States’ trade war with China, while playing down the possibilities of immediate setbacks.

Prior to the US-China tit-for-tat, Asia’s fourth-largest economy at 8:15 a.m. held a pan-governmental meeting. Led by the Ministry of Strategy and Finance, government officials pledge a close coordination between ministries and other state-run organizations, as well as 24-hour monitoring of financial market volatilities and macroeconomic activities.

Trade Minister Paik Un-gyu said  the US-China trade war would have “a limited impact on Korean exports in the short run.” However, Korean companies that were part of the global supply chain could be at risk.

“Korean raw material suppliers and parts makers exporting to China or the US will be the most likely victims, if their exporting goods are on the tariff list,” Joo Won, director at Hyundai Research Institute, told The Korea Herald.

“Moreover, Korean exports of capital goods like factory machines, trucks and forklifts would also take heat, which are not counted as part of the global supply chain.”



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About the Author: ANN’s current Chairman is Mr Warren Fernandez, who is also Editor-in-Chief of The Straits Times, Singapore. He is the current President of the World Editors Forum.

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