Trade war, day 34: Next $16 billion in tariffs scheduled, and an impending stalemate?


Thirty-four days ago, the U.S. officially began taxing $34 billion in Chinese imports — and China immediately responded with reciprocal tariffs, thus kicking off day 1 of the U.S.-China trade war. That first $34 billion came with a plan to implement a second tranche of tariffs on $16 billion in Chinese goods at an unspecified later date, to reach a total of $50 billion.

The second tranche will activate on August 23, the U.S. Trade Representative announced today, Reuters reports.

  • The final list targets “279 imported product lines” from China totaling $16 billion, that the U.S. will tax at a 25 percent rate.
  • Many of the products are technology-related, reflecting Washington’s continued desire for China to make concessions on its Made in China 2025 initiative.
  • The U.S. is even willing to hurt allies and itself to make that point: The tariffs “will hit semiconductors from China, even though many of the basic chips in these products originate from the United States, Taiwan or South Korea.”
  • American chipmakers aren’t happy: “We have made the case to the administration, in the strongest possible terms, that tariffs imposed on semiconductors imported from China will hurt America’s chipmakers, not China’s, and will do nothing to stop China’s problematic and discriminatory trade practices,” the president of the Semiconductor Industry Association said in a statement.
  • China will respond in kind: “China will impose a 25 percent tariff on $16 billion of goods and commodity imports from the United States on Aug 23, a necessary countermeasure to defend its legitimate interests and multilateral trading system,” China Daily reports based on a Ministry of Commerce announcement.

Where will the trade war end?

  • “A stalemate appears the most likely endgame, with new American and Chinese tariffs staying in place for months or even years,” the New York Times reports (paywall), citing “participants in the trade negotiations and their advisers.”
  • Companies are already adjusting to the new trade barriers, and shifting supply chains away from China. “Over time, such changes could reduce the trade deficit between the two countries and limit national security concerns, two big sources of discontent for Mr. Trump,” the Times says.
  • But a “negotiated truce is also possible,” as “China now appears willing to discuss changes” to its Made in China 2025 initiative.
  • “The red line is China’s right to develop, not the concrete industrial policies and measures regarding Made in China 2025,” He Weiwen, an important former Commerce Ministry official, told the Times.
  • However, the compromises China is considering on Made in China 2025 seem small, so far. The Times says that Beijing is looking into an option to “finance more research and development, instead of paying for the immediate construction of a lot of factories” because that fits better with World Trade Organization rules, but WTO rules are “more vague on whether a state-run banking system can provide preferential loans” to strategic companies, and those kinds of investments have become central to Chinese industrial policy.

More trade war and related reporting:

  • Trump’s grievances
    Trump rails against China during dinner with executives / Politico via SCMP
    A “group of 13 CEOs and senior White House staff” attended a dinner with Trump on Tuesday, August 7.
    “Trump told the executives that Chinese President Xi Jinping’s ‘One Belt One Road Initiative,’ China’s economic plan that has the potential to disrupt trade worldwide, was ‘insulting’ and that he didn’t want it, according to a person in the room. Trump said he had told Xi as much to his face.”
    “At one point during the dinner, Trump noted of an unnamed country that the attendee said was clearly China, ‘almost every student that comes over to this country is a spy.’”
  • Victims of trade war
    Trade war puts dent in Beijing’s plan to turn Hong Kong and surrounding cities into new Silicon Valley / SCMP
    “The US-China trade war has complicated Beijing’s ambitious plan to transform 11 cities in the ‘Greater Bay Area’ into the Chinese version of the ‘Silicon Valley,’ the Post has learned. A source with knowledge of the matter said the announcement was delayed so as to avoid being further targeted by the United States, taking lessons from its ‘Made in China 2025’ plan…”
    China reaches for American-made condoms as it fumbles to answer US tariffs in trade war / SCMP
    “China is taking the trade wars into the bedroom. US-made condoms are among the latest items Beijing is threatening to include on its US$60 billion list of American products to be hit by tariffs. But do not expect US condom makers to wilt under the pressure. There has been little romance between America condom makers and Chinese consumers, who tend to choose other foreign brands over American ones…”
  • Trade and economy numbers
    China’s imports jump as it digs in for a trade fight / WSJ (paywall)
    “China’s trade surplus narrowed sharply last month, with imports surging as trade tensions with the U.S. escalated…. China reported a trade surplus of $28.05 billion in July, compared with a surplus of $41.61 billion a month earlier, the General Administration of Customs said Wednesday.”
    China retail sales fall in July in blow to government plan to have shoppers offset trade war effects / SCMP
    “Sales at 50 major Chinese retailers fell by 3.9 percent in July from a year earlier, raising concerns over whether Beijing can push through its plan to ramp up domestic consumption to offset the effects of the intensifying US-China trade war. Retailers of home appliances saw the biggest decline, with a 9.9 percent drop, followed by daily necessities, which fell 5.7 per cent…”
    Yuan gives up gains, stocks slide as China pushes for stability / Bloomberg (paywall)
    “China’s yuan gave up earlier gains that came after the central bank was said to have met with major lenders to emphasize currency stability, while mainland stocks fell following their best day in more than two years.”

Previously in SupChina’s trade war coverage:

Trade war, day 33: China threatens Apple could be ‘bargaining chip’

How is Chinese media reacting to the trade war?