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Huge US-China punitive tariffs take effect

25 September 2018

Beijing's vice premier Liu He was proposed to meet with the Trump administration in Washington to have mid-level trade talks.

But Trump warned he could ramp up to "phase three", slapping tariffs on approximately $267 billion of additional imports, or the entirety of the goods the USA buys from China.

On Monday, the ratings agency Fitch cut its forecasts for next year's Chinese and global economic growth by 0.1 percentage points to 6.1 per cent and 3.1 per cent, respectively.

The commercial battle between the United States and China heated up Monday as the economic powerhouses slapped each other with the largest rounds of tariffs yet, unleashing punitive duties now on roughly half of their traded goods. That has long-term consequences for China, too, as it will encourage a rapid military build-up by the U.S. and maybe Japan in the region, but it's not a bad short-term lever on Trump as long as it doesn't go too far.

In 2017, China imported £99 billion (US$130 billion) worth of U.S. goods while the USA brought in a total of £385 (US$506 billion) Chinese imports. A state-owned Chinese bank is helping with the project's financing, and a state-owned Chinese energy company is meant to buy much of its production. There's a growing consensus in Beijing that substantive talks will only be possible after United States mid-term elections in November, the people said. Mr Trump has warned that the 10 per cent tariffs on US$200 billion in Chinese goods will rise to 25 per cent in January if Beijing refuses to offer concessions.

Still, China has other methods of retaliation open to it.

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Neither side has backed down since the tit-for-tat tariff war began in July when the USA imposed duties on US$34 billion of Chinese goods. Another US$16 billion of goods were included in August and China retaliated in kind to both moves. A protracted trade war will fuel inflation in the U.S., particularly as tariffs are added to categories such as furniture, apparel and technology, according to analysts at Bloomberg Intelligence. "This latest tranche is a tsunami", said Hun Quach, vice-president of global trade for the Retail Industry Leaders Association.

Rob Carnell, chief Asia economist at ING, said in a note to clients that in the absence of any incentives Beijing would likely hold off on any further negotiations for now.

President Donald Trump's tariffs on another $200 billion of Chinese imports took effect on Monday, with Beijing accusing Washington of "economic intimidation" as the standoff between the world's top two economies clouds the global outlook.

Trump earlier this month accused China of targeting rural voters who support his presidency by hitting agricultural goods.

A swathe of products are on the hit list, including Chinese-made voice data receivers, computer memory modules, automatic data processors, and accessories for office equipment such as copiers and banknote dispensers - instantly making widely used goods more expensive. "Unless that happens, serious negotiations will be impossible and the likelihood of continued escalation increases", Mr Alden said.

Huge US-China punitive tariffs take effect