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  August 16th, 2018 | Written by

US and China taking steps to manage trade war impact

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  • USTR Robert Lighthizer: US-China trade tensions will “take time” to resolve.
  • US imposed 25-percent Section 301 tariffs on $34 billion worth of Chinese imports.
  • China retaliated with equivalent tariffs on US imports.

Following the recent imposition of tariffs, both the United States and China moved to shield their economies while taking retaliatory action. According to US Trade Representative Robert Lighthizer, US-China trade tensions will “take time” to resolve.

In the wake of the Section 301 investigation into China’s practices on technology transfer, IP infringement, and licensing, the United States imposed 25 percent tariffs on $34 billion worth of Chinese imports. China retaliated with equivalent tariffs on US imports, and both sets of tariffs went into force on July 6.

The Trump Administration took measures to confront and ameliorate the effect of Chinese trade retaliation on the United States, including: (1) launching five cases at the World Trade Organization (WTO); (2) scheduling retaliatory tariffs on an additional $200 billion of Chinese imports; and (3) announcing an emergency relief package to protect US farmers from retaliatory tariffs abroad.

Similarly, Chinese officials have moved to respond to US trade challenges with non-tariff measures and additional tariffs while softening the impact of US tariffs.

Following China’s retaliatory tariffs, prices for key US agricultural exports have declined. China accounted for about 57 percent of US soy exports in 2017, versus 17 percent of advance purchases now pending. Falling prices hit US hog farmers in 2018 thanks to tariffs causing a spike in US hog supply. Hog futures fell by $18 per animal, leading to a projected $2.2 billion annual loss.

Almond prices have fallen by more than 10 percent since May; China’s tariff adds a 50-percent tax.  The Almond Board of California found that export commitments declined 26 percent in June. Buyers are being scared off taking positions on advance contracts because of the possibility of be another tariff in the future.

US Secretary of Agriculture Sonny Perdue announced a $12 billion relief package to support US farmers impacted by retaliatory tariffs abroad. The package would pay soybean, sorghum, corn, wheat, cotton, dairy, and hog farmers, and would allow USDA to purchase “unexpected surplus” of certain products.

Chinese government officials also took measures to address US trade pressures. On July 26, Qualcomm announced it would end its $44 billion bid to acquire NXP Semiconductors N.V. after 21 months. China’s Ministry of Commerce failed to approve the deal.

The People’s Bank of China (PBOC) has cut the reserve requirement for banks three times in 2018. This lowers the cash deposits banks must keep on hand, allowing them to issue more credit. The value of the RMB declined against the dollar providing a cushion for Chinese exports.

China’s State Council announced it would impose a series of retaliatory tariffs on $60 billion worth of US exports to China if the United States applies additional tariffs on Chinese products. Proposed Chinese tariffs would range from five percent to 25 percent and affect over five-thousand types of US goods.