U.S. Tariffs: Undaunted China hits back and U.S., global and Asian stocks tumble

us china trade war

China is undaunted in the face of U.S. pressure in the on-going trade war between the two countries, which the U.S. has initiated.

The world’s two biggest economies have been involved into a full-scale trade dispute over the past two years.

Media reports said:

China on Monday struck back at U.S. tariffs on Chinese goods. The measures will be effective from June 1, China’s Ministry of Finance announced on Monday.

Chinese and U.S. officials concluded the 11th round of negotiations in Washington on Friday without reaching any deal. There were no plans for future talks as of Monday.

In light of the drastic turn of events in the trade talks, China has prepared for all scenarios, officials and analysts said.

The U.S. on Friday raised duties on $200 billion on Chinese goods to 25 percent from the 10 percent imposed since September 2018, to which China responded with tariffs on $60 billion in US goods.

China announced duties between 5 percent to 25 percent on more than 5,100 products from the U.S. worth tens of billions of dollars.

The measured but firm response from Chinese officials highlighted China’s defiance toward maximum pressure from U.S. officials amid a fresh escalation in the trade war.

At the same time, China is trying to avoid a full-fledged trade war with the U.S.

China will impose an additional tariff of 25 percent on 2,493 items such as liquefied natural gas and 20 percent on 1,078 items including fruits and chemicals, starting June 1. The Customs Tariff Commission under the State Council, China’s cabinet, in a statement Monday announced these.

According to the statement, China will also impose an additional tariff of 10 percent on 974 items, such as vegetables and seafood, and 5 percent on 595 items including smaller planes.

In total, the tariffs cover 5,140 US products worth $60 billion.

The statement said that China’s measures were in response to the U.S.’ decision to raise tariffs on $200 billion in Chinese goods.

The statement said: “The aforementioned U.S. action has led to an escalation in China-U.S. trade frictions and is against a consensus reached by the two sides to address trade differences through consultations.”

The statement added, the measures hurt both sides’ interests.

Earlier, China’s Foreign Ministry said that the country would never surrender to foreign pressure amid renewed threats from Washington to impose tariffs on all Chinese goods.

“China will never surrender to external pressure. We have the confidence and the ability to protect our lawful and legitimate rights,” Foreign Ministry spokesperson Geng Shuang told a daily news briefing on Monday.

“Again, we hope the US side could work with China and meet China halfway to address each other’s reasonable concerns based on mutual respect and equal terms,” he said.

The Chinese tariffs also followed fresh threats from U.S. officials to impose tariffs on $325 billion in Chinese goods with details expected to be announced on Monday U.S. time.

“Since the U.S. has resumed the trade war, we should hit back hard to show the Americans that they will not gain anything from their tough approach,” said He Weiwen, a former senior Chinese trade official.

He Weiwen said: “But we should also not close the door to talks.”

China has been forced to impose the tariffs.

However, China took the measures in a way that avoided a further escalation and left room for negotiations, said Song Guoyou, director of Fudan University’s Center for Economic Diplomacy.

“The country still left some room in the hope that bilateral trade tensions would not further escalate, and that there would be possible future talks with the U.S.,” Song said.

U.S. stocks tumble

Following China’s tariffs, U.S. stocks tumbled on Monday, with the Dow Jones Industrial Average losing 2.17 percent shortly after market opening.

Shares of major U.S. companies, which rely on Chinese markets also nosedived, with machinery maker Caterpillar stocks down 4.54 percent and aircraft maker Boeing shares down 3.38 percent.

Apple’s share price fell about four percent in pre-market trading Monday.

Global stock markets also tumbled

Global stock markets also tumbled on Monday on news of the Chinese response. The S&P 500 fell 1.46 percent, Dow futures dropped 1.36 percent while Nasdaq futures declined 1.99 percent.

Asian stocks fell

Asian stocks fell broadly, with Nikkei 225 index dropping 0.7 percent and the Shanghai Composite shedding 1.2 percent. Chinese yuan fell to its lowest in more than four months to 6.88RMB to the dollar.

European stocks dived

European stocks also took a dive, adding to their earlier losses. The Stoxx 600 index lost 0.5 percent, German DAX slid 0.7 percent, and the French CAC 40 dipped 1.2 percent.

Analysts say a further deterioration of trade-deal progress will apply broad downward pressure to equities, while some sectors are especially vulnerable.

Measured response

“I think the response is firm but measured,” said Huo Jianguo, vice chairman of the China Society for World Trade Organization Studies in Beijing, pointing out that the measures were specifically aimed at responding to the U.S. action.

“While the Chinese tariffs cover less U.S. products than the US tariffs do on Chinese goods, it is sufficient to show that China is not going to back down from pressure,” Huo said.

China’s response comes about an hour after U.S. President Donald Trump warned China against retaliating on Monday. “China should not retaliate – will only get worse!” Trump tweeted while repeating false accusations against China.

But if the US wants to further escalate the trade war, China will respond in kind and there are many other tools it could take to inflict pain on the U.S. economy, including targeting US financial markets, analyst noted.

Boeing may be targeted

China reportedly threatened to single out U.S. aircraft maker Boeing as part of the ongoing trade dispute. The news sent shares in the U.S. aircraft manufacturer down more than three percent.

China and the U.S. signed an accord to improve the mutual certification of civilian aircraft in 2017, but Chinese airliners have still failed to receive approval in the US despite numerous long-lasting attempts.

Chinese officials have attempted to link the certification process of Boeing’s 737 MAX to the approval of its own domestically produced jets in the U.S., Bloomberg reported, citing anonymous U.S. officials. China has thereby tried to enter the American market, which has remained closed to it due to aircraft manufactured in the country not having received a green light from the U.S. aviation regulator.

China has long sought to gain certification for its civilian jets, which are rivals of both Boeing and Airbus, to be sold to American firms, but Chinese aircraft have never received it, despite multiple attempts.

According to the Bloomberg’s sources, while Chinese officials have never made “overt demands” for their airliners to be certified in exchange for approving Boeing’s top jet, “their intentions were clear”.

However, the U.S. hasn’t budged and Boeing’s 737 MAX was eventually granted certification in China, while its direct analogue, the Comac C919, hasn’t been given a green light by the U.S. Federal Aviation Administration, which was reportedly approached by U.S. trade officials on the matter. Neither Chinese nor American officials have commented on Bloomberg‘s report.

Notably, the two countries signed an agreement in October 2017 that sought to improve the process of granting mutual certification to civilian airliners. However, Chinese aircraft have still not received a green light from the U.S. regulator.

At the same time, while the Boeing 737 MAX has faced global trouble following two crashes in less than half a year, China was one of the first countries to ground the plane in March 2019. Eventually, all countries using the jets have ordered them to be grounded until the cause of the crashes has been determined.

The grounding was prompted by the crashes of two Ethiopian Airlines and Lion Air 737 MAX aircraft in March 2019 and October 2018 respectively, which killed a total of 346 people. An investigation has shown that the planes’ anti-stall system could have sent them into an uncontrolled dive due to a malfunctioning angle sensor. The sensor allegedly led the system to believe that the plane’s angle of attack was too high and forced it to drastically lower the plane’s nose.

Since then, Boeing has released a software update, claiming that it has made the system less aggressive, but so far, the global grounding remains in effect until regulatory bodies decide whether the jet is safe to fly.

Possibility of dumping U.S. Treasuries

“China may stop purchasing U.S. agricultural products and energy, reduce Boeing orders and restrict US service trade with China. Many Chinese scholars are discussing the possibility of dumping U.S. Treasuries and how to do it specifically,” Hu Xijin, editor-in-chief of state-run media outlet Global Times, said in a tweet.

Contradictory U.S. view

White House Chief Economic Adviser Larry Kudlow said Sunday that both the U.S. and China would suffer when questioned about who would pay the tariffs imposed by the U.S. on Chinese imports in an interview on Fox News.

Although he also argued that the effect on the U.S. economy would be modest, his remarks were singled out by the U.S. media for contradicting U.S. President Trump’s claim that duties are a good option that would help the U.S. economy.


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