American Flag - Photo by White House

JAKARTA (TheInsiderStories) – Trade war between United States (U.S) and China weighed on U.S and European bourses on Friday (f15/06) following tit-for-tat tariff announcements by the two countries.

In his statement released on June 15, U.S’s President Donald Trump announced a preliminary list of essential and strategic items that will be charged 25 percent effective starting July 6. Responding Trump’s policy, China issued its own list of U.S imports subject to tariffs, targeting soybeans, airplanes, cars, and chemicals.

Since early May, the two nations have held several rounds of talks but have not reached an agreement as the U.S pressures China to narrow its trade deficit to $375 billion.

In his speech, Trump said trade between U.S and China has been very unfair, for a very long time. He continued, China has, for example, long been engaging in several unfair practices related to the acquisition of American intellectual property and technology.

These practices, he claimed, documented in an extensive report published by the U.S’s Trade Representative on March 22, harm his country’s economic and national security and deepen already massive trade imbalance with China.

“In light of China’s theft of intellectual property and technology and its other unfair trade practices, the United States will implement a 25 percent tariff on $50 billion of goods from China that contain industrially significant technologies,” said Trump.

He adding, this includes goods related to China’s Made in China 2025 strategic plan to dominate the emerging high-technology industries that will drive future economic growth for China.

In addition, He tell, the action will serve as an initial step toward bringing balance to the trade relationship between the United States and China.

The International Monetary Fund (IMF) has warned Trump that its new tariff policy could damage the global trading system. Moreover, when inviting acts of retaliation from trading partner countries, it will turn against the US economy.

IMF’s Managing Director Christine Lagarde in an IMF report on June 14 outlined, international trade policy recent actions by the U.S to impose tariffs on imports come with further risks. Unilateral trade actions can be disruptive and may even prove counterproductive to the functioning of the global economy and trading system.

In a so-called trade war, driven by reciprocal increases of import tariffs, nobody wins, she emphasized. One generally finds losers on both sides also the macroeconomic impact.

“It would be serious, not only if the United States took action, but especially if other countries were to retaliate, notably those who would be most affected, such as Canada, Europe, and Germany, in particular. We, therefore, encourage the U.S. to work constructively with its trading partners to resolve trade and investment 3 disagreements without resorting to the imposition of tariff and non-tariff barriers,” Lagarde said.

Following U.S policy, India is reported has submitted a revised list of 30 items, including motorcycle, certain iron and steel goods, boric acid and lentils, to the World Trade Organization on which it proposes to raise customs duty by up to 50 percent.

The reason, duties hiked by the U.S on certain steel and aluminum products would have implications of about $241 million on India. It said, the raise in tariffs proposed by India would have an equal implication on America.

On March 9, Trump imposed heavy tariffs on imported steel and aluminum items, a move that has sparked fears of a global trade war. He signed two proclamations that levied a 25 percent tariff on steel and a 10 percent tariff on aluminum imported from all countries except Canada and Mexico.

Earlier India had stated that these suspensions will come into effect earlier than June 21, 2018, in case the U.S decides to continue the period of application of the measures.

India’s exports of steel and aluminium products to America stood at about $1.5 billion every year. Its exports to the US in 2016-17 stood at $42.21 billion, while imports were $22.3 billion.

Market Reactions

Wall Street stocks opened solidly lower following Trump’s decision before recovering some of the losses. While Nasdaq down 0.2 percent, retreating from Thursday’s record. The Dow and S&P 500 also ended lower.

 

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