China’s wide-ranging tariffs on US products
On July 6, China imposed tariffs of 25 percent on $34 billion of United States exports in response to US Section 301 duties against Chinese products. In addition to China’s tariffs on agriculture and auto exports, Beijing announced a second round of tariffs on US coal, petroleum, chemical, and medical exports that will be implemented at a future date.
China’s duties on US agricultural products will have a large impact on US farmers who rely on China’s market. In 2017, China was the United States’ second-largest export market, accounting for $20.8 billion (roughly 14 percent of US agriculture exports worldwide). Roughly 89 percent of all US food and agriculture exports to China will be affected, including sorghum and soybeans, which are heavily dependent on China’s market. In 2017, China accounted for 81 percent and 57 percent of all US sorghum and soybean exports, respectively. China’s position as the world’s largest importer of sorghum and soybeans will make it difficult for US farmers to transition to other markets without a significant price cut. In 2017, China claimed 73 percent of the world’s imports of sorghum and 71 percent of global soybean imports according to Chinese and UN statistics. As soybeans represent over half of the United States’ agriculture exports to China and nearly 10 percent of global US agriculture exports, China’s tariffs will have a significant negative impact on US agricultural exports.
China’s tariffs on US auto exports may have less impact on US firms. While China is the United States’ third-largest market for automobile and automobile parts exports (accounting in 2017 for $12.8 billion, or 9.5 percent of total US auto and auto part exports), the largest US auto firms rely on joint ventures and overseas subsidiaries rather than exports to sell their cars in China. General Motors has ten JVs and two wholly-owned enterprises in China, while Ford has seven Chinese JVs and wholly-owned enterprises.
Most US auto exports to China are from foreign firms manufacturing vehicles in the United States for export to China. For example, German automakers BMW and Daimler AG are predicted to export nearly $7 billion worth of cars from the United States to China in 2018.
Given the wide gap in exports each country can target, Beijing may feel compelled to take additional retaliatory actions to mount an equivalent response to US tariffs. In 2017, the United States imported over $505 billion of goods from China; President Donald Trump suggested levying tariffs on as much as $450 billion of Chinese imports. By contrast, US goods exports to China totaled $129.8 billion in 2017.
In June, a spokesperson for China’s Ministry of Commerce said that if the United States expands its own list of tariffs, China would respond with “comprehensive quantitative and qualitative measures.” Many US observers believe “qualitative measures” refer to informal economic pressure the Chinese government can bring to bear on US businesses. In the past, China’s government has retaliated against foreign governments by interfering with the operations of their businesses. For example, in 2016 after the United States and South Korea announced their decision to deploy a US Terminal High Altitude Area Defense anti-missile battery, China responded by launching investigations into South Korean businesses in China, closing South Korean stores for alleged safety violations, and halting Chinese tourism to South Korea.
Considering the volume of China’s exports to the United States, trade restrictions would have a negative effect on China’s economy. In 2017, exports to the United States amounted to roughly four percent of China’s total gross domestic product that year. Prior to imposing tariffs, Beijing took several steps to alleviate the impact of US tariffs on China’s exporters and Chinese tariffs on China’s ability to import from the United States. In an attempt to reduce China’s dependence on US soybeans (the United States is China’s second-largest supplier of soybeans), on July 1 China removed tariffs on soybeans, soymeal, and other animal feed ingredients from Bangladesh, India, Laos, South Korea, and Sri Lanka. In May, Chinese authorities declared a soybean “emergency,” ordering local officials to increase domestic soybean planting and issuing large subsidies for Chinese soybean farmers. In June, China’s central bank cut reserve requirements for Chinese banks by 50 basis points in an attempt to provide additional lending to Chinese small and medium enterprises. The reduction in reserve requirements would provide $108 billion in new lending and may be an effort to stimulate China’s economy to offset economic damage from trade friction with the United States.
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