On August 3rd, China’s Ministry of Commerce announced it would be imposing tariffs on 5,207 items originating in the U.S. that are worth approximately $60 billion. The duty rate ranges from 5% to 25%.
Although specialty crop items are largely excluded from this list, including raw pistachios, processed nuts, roasted pistachios and olive oil are included. The final measure and effective time will be announced separately, but the tariffs will not be imposed before September 5, 2018. This move is in retaliation to the United States’ proposed section 301; 25% tariff on $200 billion worth of Chinese goods.
The tariff war was caused by two decisions by the Trump Administration. The first U.S. tariff increase was under Section 232 of the Trade Expansion Act of 1962, used to determine the effects on the national security of steel and aluminum imports. The second tariff increase was caused by violation of Section 301 of the Trade Act of 1974 in particular U.S. intellectual property rights.
These retaliatory tariffs would apply on top of existing duties on $34 billion worth of U.S. products and an additional $16 billion that is expected to go into force on August 23rd. In early July, the President also stated he was prepared to impose tariffs on all $500 billion worth of goods that the U.S. imports annually from China which could welcome increased tariff rates on U.S. agricultural goods. In a move that could have long-term damage on U.S trade, the Chinese government continues to urge importers to shift their purchases away from the United States.
There appear to be two likely outcomes in the trade war between China and the U.S. A stalemate is the most likely result, with new American and Chinese tariffs staying in place for months or even years. The second possible conclusion would be a negotiated truce. While China has expressed a willingness to change parts of its industrial policy in violation of global trade rules, it has refused to commit to all the changes the Trump Administration desires. The best possible result from the trade war is both presidents favoring zero tariffs which would benefit U.S. exports to China.