On 15 June, U.S. President Trump announced an initial 25% tariff on around
USD 34 billion in Chinese imports, effective on 6 July, in response to
what Trump called “China's theft of intellectual property and
technology”. The tariffs are mostly focused on products included in the
“Made in China 2025” strategic plan, an initiative that aims to upgrade
China’s industrial capabilities and move up the country’s manufacturing
value chain. The list includes industrial machineries, mechanical
appliances and electrical parts and products. An additional USD 16
billion in tariffs on Chinese imports will undergo a review process. The
second wave of tariffs could be enforced by mid-August and will mainly
cover more advanced technology, including semiconductors. Moreover, the
U.S. threatened tariffs on an additional USD 100 billion in Chinese
imports if China retaliates.
In response to the U.S. announcement, China immediately retaliated by imposing a 25% tariff on
USD 34 billion of U.S. imports, also effective on 6 July. Chinese
authorities mostly targeted food products, including meat and soybeans,
and cars. China also put USD 16 billion of U.S. imports under review,
including coal and oil.
The impact of the U.S. tariffs on China’s trade and growth is expected to be limited. China’s exports to the
United States amounted to USD 433 billion last year, implying that only
around 12% of the total exports will be affected by the tariffs.
Moreover, China shipped around USD 2.3 trillion in products to the rest
of the world last year, and the country’s nominal GDP climbed to USD
12.2 trillion.
Inflation in China is expected to face modest upward pressure as a result of China’s tariffs on U.S. goods. According
to Wendy Chen, China economist at Nomura:
“China’s imports from the US were $155bn in 2017, so the tariff hike of 25% on roughly $50bn
in goods means approximately 32% of imports from the US will be
affected. The direct impact of the increased tariff could be higher
prices of US imports in China. […] the 0.6% increase in import price
inflation could lead to a 0.2pp increase in PPI inflation and a 0.1pp
increase in CPI inflation. Overall, the inflationary impact seems to be
minor.”
Analysts foresee that the Chinese economy will emerge relatively unscathed from this trade battle. However, in the case of
another round of tariffs affecting USD 100 billion or more in Chinese
imports, the impact on economic growth would be more noticeable.
According to some analysts, it could detract around 0.4 percentage
points to the GDP growth forecast for this year. Along with the direct
impact of the tariffs, the economy will be negatively affected by a
potential disruption in supply chains and a deterioration in business
sentiment.
