IHS: Trade War Escalates as US Announces Second Tranche of Tariffs on Chinese Exports

US's President Donald Trump and China's President XI Jinping in their last meeting - Photo by The State Council The People's Republic of China

JAKARTA (TheInsiderStoriesI – The Trump Administration has announced a second tranche of tariffs on China, with a 10 percent tariff on an additional US$200 billion of Chinese products to be imposed from 24 September.

According to Rajiv Biswas, Asia Pacific Chief Economist at IHS Markit, these measures have been taken as part of the US government’s Section 301 investigation of the impact on US firms of China’s intellectual property and technology practices. The tariff rate will ramp up to a 25 percent rate on 1 January 2019.

He said, the immediate impact of the 10 percent tariff rate will be limited, since the depreciation of the Chinese yuan against the US dollar since February 2018 has almost entirely offset the effect of the 10 percent tariff on Chinese exporters.

The Chinese yuan has depreciated from 6.27 against the US dollar on Feb. 8 to 6.87 on Sept. 17, 2018, which has shielded Chinese exporters from the impact of the 10 percent tariff rate, added by Biswas.

However, he stated, if no US-China trade deal can be reached by the end of 2018 and the US tariff rate escalates to 25 percent on this second tranche of $200 billion of Chinese products, the impact on China’s export sector will be far more significant.

A 25 percent tariff rate on $200 billion of Chinese products would also cause significant collateral damage to other Asian economies that are part of the East Asian manufacturing supply chain, since around one-third of the value added in Chinese exports consists of imported foreign raw materials and intermediate goods, much of which is sourced from East Asian economies.

However, Biswas said, there will also be some trade diversion effects away from China which may benefit some Asian exporting nations such as Vietnam. Vietnam produces low-cost electrical and electronic goods as well as garments and textiles that US importers could source as substitutes for some Chinese products.

The Trump Administration has also indicated that a third tranche of US tariff measures could be imposed on up to $267 billion of Chinese products, which would then bring almost all Chinese exports to the US under the US tariff measures.

The latest Caixin General Manufacturing Purchasing Managers’ Index  for August showed that escalating US-China trade frictions had weighed on demand for Chinese manufactures, with new export orders having contracted for the fifth consecutive month.

The escalating US-China trade war will further weigh on Chinese export orders and business sentiment, particularly if no trade deal can be reached by the end of 2018.

Written by Staff Writer, Email: theinsiderstories@gmail.com