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Here's what we know about China's stance as tariff hour nears

Jul 05 2018 13:25
Bloomberg News

Friday July 6 is the date when the world’s two largest economies are due to slide deeper into a trade conflict that’s roiled markets and cast a shadow over the global growth outlook.

In Beijing, policy makers are digging in for what could be a protracted fight - one they say they won’t be the aggressor in. If the US begins imposing additional steep tariffs on Chinese imports as of Friday, then Beijing is poised to respond in kind. With further tit-for-tat levies already threatened, this week could mark the start of a new and dangerous phase.

The US imposition of tariffs on $34bn of China’s exports will not only hurt China, but the US itself and the rest of the world, Gao Feng, China’s Commerce Ministry spokesman, said at a regular press conference in Beijing on Thursday. China’s retaliatory tariffs will become effective “immediately” after the US acts, according to the customs authority.

Everything You Need to Know About the Burgeoning Trade War

Here’s a run down of the key facts about China’s position in the conflict:

What goods are to be targeted?

On June 15, President Donald Trump said the US would begin charging additional duties of 25% on $50bn worth of Chinese imports in response to what he says is theft of American intellectual property. That’s split into two rounds - $34bn now and $16bn later.

China responded with a statement saying it would fight back with “equal scale, equal intensity.” Beijing is targeting soybeans, corn, wheat, rice, sorghum, beef, pork, poultry, fish, dairy products, nuts and vegetables, and autos in its first round of counter measures.

When will these actually start being levied?

The first wave on US tariffs on $34bn of Chinese exports will take effect on July 6, according to a statement from the US Trade Representative, which didn’t specify a time. China’s response of additional tariffs on US goods will become effective "immediately" thereafter. If the US tariffs come in at midnight on Friday US time, that’s midday Friday in Beijing.

Are markets ready?

Chinese stocks have taken a beating in recent weeks, entering a bear market, as concerns about the trade-war have mingled with worries about how an ongoing debt-control campaign will feed through into the outlook for economic growth.

Stocks fluctuated on Thursday, as investors may be waiting to see which way the tariffs are actually implemented.

"Any market rebound before the July 6 deadline would be just temporary. All eyes are on the Trump administration’s move to impose the 25% additional tariff on Friday and what’s next after that," said Zhang Gang, Central China Securities Holdings strategist in Shanghai. "The trade war is a constant overhang for the markets and I don’t see it being removed any time soon."

The yuan slipped on Thursday despite the strongest daily reference rate since October. China’s currency suffered its worst quarter since 1994 in the three months through June, raising questions over whether the government was deliberately letting it slide as a tactic in the trade war.

What can the real-world impact be?

The tariffs are already having an effect. As an example, Chinese companies are reselling US soybeans, and Chinese companies are expected to cancel most of the remaining soybeans they have committed to buy from the US in the year ending August 31, once the extra tariffs take effect.

In China, what will the economic impact be?

A: It depends on what happens. In the scenario where the US and China just stick to this round of tariffs - $50bn of imports - and go no further, then the drag on China’s economy would be 0.2% point of growth in 2019, according to Bloomberg Economics’ calculations.

If things escalate, then the hit will be bigger, cutting as much as half a percentage point from growth. China’s economy grew by 6.9% 2017 and the government has set a target of 6.5% for the current year.

Domestically, it’s China’s rich coastal provinces who have the biggest reliance on exports. Guangdong, Shanghai, Zhejiang, Jiangsu and Fujian all have export-to-GDP ratios higher than the national average of 18.5%, according to Bloomberg Economics. In the meantime, those provinces have lower debt-to-GDP ratios, stronger growth and more dynamic private sectors, which can help cushion the blow.

“The tail risk of a Sino-US trade war is getting fatter,” said Chi Lo, greater China senior economist at BNP Paribas Asset Management in Hong Kong. “The two sides may misjudge each other’s intentions when patriotism takes over rationality, and push themselves into an escalating series of attacks and retaliation.”

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trade war  |  china tariff
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