On Tuesday, March 4, China demonstrated an instant proactive response to tariffs from the United States by deciding to raise levies on imports of US agricultural products and food worth $21 billion.
The mentioned decision by Beijing was another signal that the world’s two largest economies are gradually approaching a full-scale trade war. It is worth noting that the consequences of this negative scenario will be global and will most likely affect not only the United States and China.
Beijing has also decided on export and investment restrictions for 25 US companies. The Chinese authorities said the mentioned decision was due to national security concerns. It is worth noting that, unlike the case when the Asian country retaliated against tariffs from the administration of the President of the United States Donald Trump on February 4, in March Beijing avoided punishing any household names.
A Chinese foreign ministry spokesperson said during a press conference that an attempt to exert extreme pressure on an Asian country was a miscalculation and a mistake. Also, in the relevant context, it was separately noted that China has never succumbed to bullying and coercion.
Beijing’s retaliatory measures in the framework of the trade confrontation with Washington were imposed after the 10% extra duties that Donald Trump threatened the world’s second-largest economy came into force.
Currently, the US cumulative tariff on goods imported from China is 20%. The White House said that these trade policy tightening measures are a reaction to Beijing’s inaction on the flow of drugs. China does not agree with the relevant accusations against it. Beijing, at the level of official rhetoric, characterizes Washington’s tightening of trade policy as actions in the context of the concept of blackmail. According to China, the official explanation of the reasons for the tariff increase from the United States is inconsistent with reality. In this context, Beijing pays special attention to the fact that it pursues one of the toughest anti-drug policies in the world.
According to media reports, citing analysts, China still assesses as a realistic possibility that the Asian country will be able to reach agreements with the United States on a truce on tariffs. Experts say that the argument in favor of this assumption is that Beijing, in their opinion, deliberately raised its return levies not over 20%. Analysts suggest that the mentioned actions of Beijing indicate its desire to generate a space possible for negotiators in the framework of attempts to conclude the deal. At the same time, they note that each new act of escalation in the context of the economic confrontation between China and the United States reduces the likelihood that in the foreseeable future, the two countries will be able to reach an agreement on resolving their trade relationships and ensuring more favorable conditions for cooperation.
Even Pay, an agriculture analyst at Trivium China, said the Asian country’s government was signaling its unwillingness to escalate. According to this expert, in the context of the current state of affairs, it is fair to say that the initial stage of Trade Wa 2.0 between Beijing and Washington is nowadays being observed. Even Pay suggests that there is still time to avoid a protracted confrontation between the world’s two largest economies if Donald Trump and President of the People’s Republic of China Xi Jinping can reach an agreement.
It is worth noting that on Tuesday, China also announced its intention to conduct an investigation against US optical fiber manufacturers. In this case, attention will be paid to the potential involvement of the mentioned companies in circumventing anti-dumping measures. China has also suspended the import licenses of three US exporters. Moreover, Beijing has decided to halt China-bound shipments of United States lumber.
It is worth noting that the new tariffs from Washington are an additional increase to the already existing levies on thousands of Chinese goods. It is worth noting that some of the mentioned products took the brunt of the drastic increase in duties, a decision that was made by the administration of former United States President Joe Biden. In this case, one of the sensitive measures was the doubling of levies on semiconductors to 50%. The Joe Biden administration also decided to increase tariffs on electric vehicles fourfold to more than 100%.
Moreover, it is worth noting that the deterioration of relationships between Beijing and Washington has been a geopolitical tendency over the past few years. In this context, it is also appropriate to draw attention to the fact that the United States and some of its allies have restricted the export of advanced chips and equipment for the production of microcircuits of the appropriate category to China. As part of the retaliatory measures, Beijing banned shipments of several minerals to the US.
The 20% tariff is expected to have a significant negative impact on certain categories of consumer electronics imported into the United States from China. In this case, smartphones, laptops, videogame consoles, smartwatches, speakers, and Bluetooth devices are meant, among other things. It’s worth noting that in the past restrictive measures did not apply to the mentioned product categories.
Starting on Monday, March 10, additional duties of 15% from China will come into effect for chicken, wheat, corn, and cotton shipped from the United States. Beijing has also decided on extra 10% tariffs on imports of soybeans, sorghum, pork, beef, aquatic products, fruits, vegetables, and dairy products from the US. These measures to tighten China’s trade policy will also take effect on March 10.
According to preliminary media estimates based on US census data for 2024, the additional levies will affect about 15% of the total volume of export shipments from the United States to the Asian country. In this case, it implies a trade turnover of $21 billion.
Beijing has also added 15 US companies to its export control list. The corresponding list consists of firms to which Chinese brands cannot supply dual-use technologies.
Moreover, Beijing put 10 US companies on its Unreliable Entity List for selling arms to Taiwan, which the current Chinese political concept identifies as its territory, although the self-governing island does not agree with the corresponding statement.
Cameron Johnson, a supply chain expert at Tidalwave Solutions, said that the present situation is still on track to 60% tariffs. In this case, it implies a threat that was repeatedly mentioned during the election campaign of Donald Trump last year. According to the expert, at the moment, with 20% tariffs, it just barely moves the needle for companies wanting to move potential supply chains out of the country. It was also noted that at 35%, firms will start to move or consider other strategies.
It is worth noting that China is the largest market for agricultural products from the United States. This sector has long been the most vulnerable as a space of confrontation within the framework of trade wars or high trade tensions that have not reached the level of a full-fledged economic conflict.
It is also worth noting separately that Chinese imports of agricultural products from the United States in 2024 showed a decline for the second year in a row. Last year, the financial volume of the corresponding shipments was recorded at the $29.25 billion mark. In 2022, this figure was $42.8 billion.
Against the background of the tariff news, China’s futures markets have shown stability. Soymeal and rapeseed meal futures, which are most actively traded in the world’s largest importer of agricultural products, rose 2.5% last Monday, March 3, after Chinese media reported that Beijing plans to target US agricultural exports.
Trade tensions will have negative consequences for both the United States and China. In this case, Washington is faced with the realistic prospect of accelerated inflation, the fight with which has been the main focus of the Federal Reserve’s efforts in recent years. It is worth noting that experts have repeatedly warned that the implementation of the tariff threat could have negative consequences for the economic system of the United States in terms of the impact on the dynamic of inflation. In the context of trade tensions, China is facing a complication in the prospects for ensuring a sustainable economic recovery after the coronavirus pandemic. It is worth noting that the mentioned pandemic has become a kind of shock factor for the global economy as a whole. During this period, supply chains were disrupted, which had a negative impact on production and business processes. Trade tensions are also an unfavorable process for China because the Asian country’s economy is heavily dependent on exports. It is expected that against the background of the current conditions and circumstances of the global economic reality, Beijing will most likely be forced to stimulate internal consumption to ensure the favorable dynamic of gross domestic product (GDP). It is obvious that in a situation of trade tension, exports will largely lose their power as a driving force for economic growth.
On Tuesday, the US-China Business Council (USCBC) applauded Donald Trump’s goal of tackling illegal trade in fentanyl. At the same time, it was noted that raising tariffs on Chinese goods is not a way to achieve this goal. USCBC president, Sean Stein, said across-the-board tariffs will hurt US businesses, consumers, and farmers and undermine the country’s global competitiveness.
It is worth noting that a trade war between China and the United States can both harm and benefit third countries. It is worth mentioning in this context that when, during the first presidential term of Donald Trump, Beijing, and Washington made decisions on mutual tariffs, the Asian country began to reduce its reliance on US farm goods while spurring domestic production and buying more from countries such as Brazil.
It is worth noting that agricultural exporters from the United States could also step up efforts to replace the Chinese market by shipping more to Africa, India, and Southeast Asia.
Dennis Voznesenki, an analyst at Commonwealth Bank in Sydney, said Chinese tariffs on US wheat and corn imports should be supportive for demand for Australian wheat and barely exports. However, the expert also noted that China’s recent slowdown in imports of feed grains from all origins should temper the excitement.
As we have reported earlier, Claudia Sheinbaum to Announce Tariffs Countermeasures.
