The trade war between China and the United States has been escalating, with the United States announcing 10-percent tariffs on $200 billion worth of Chinese imports on July 10, and the U.S. Trade Representative saying in a statement on August 1 that it was considering increasing the proposed additional duties to 25 percent.
China has been forced to take countermeasures in response. On August 3, China's Ministry of Commerce announced plans to levy additional tariffs on $60 billion worth of U.S. products in 5,207 categories with four tariff rates ranging from 5 to 25 percent. These tariffs will become effective in the event that the United States further attacks bilateral trade by introducing tariffs on more Chinese products.
China's second round of countermeasures has naturally gained a great deal of attention around the world, but it is worth highlighting that the Chinese side's latest move has demonstrated the country's resolve to confront trade aggression, with both the decision itself and its implementation forming a coherent and logical response. Unity and stability in decision and response are an important means of coping with all challenges faced by any country.
China has sought to minimize the damage to its own economy by taking countermeasures, which is inherent in both the timing of the announcement and the staggered tariff rates.
As this round of the trade war began, I said that China should pay close attention to the influence of trade disputes on its financial markets. That is because however fierce the war of words becomes, the related trade in goods and services will remain unaffected until tariffs actually take effect, while threats themselves are powerful enough to disturb the financial markets.
The timing of measures and countermeasures are important in this regard. On July 10, the United States announced 10-percent tariffs on $200 billion worth of Chinese imports, but China did not announce countermeasures until the evening of August 3, two days after the U.S. declaration of a rise of the additional duties to 25 percent.
That was because the Chinese Government understood the inevitable impact of the trade war on its stock market, which had just experienced a tumultuous July. If countermeasures had been unveiled immediately, the issues affecting the Chinese stock market would have worsened. China announced the countermeasures at 8 p.m. on a Friday knowing that the following two days were not trading days, allowing the domestic stock market some time to process the news.
While the U.S. side has threatened to increase the tariff rate on $200 billion worth of Chinese imports, China plans to levy additional tariffs on $60 billion worth of U.S. products with four different rates ranging from 5 to 25 percent. Action taken by the United States may seem on the surface to be more aggressive, but it will likely intensify inflation in the United States. On the contrary, China's countermeasures aim to minimize the adverse impact on Chinese manufacturers and consumers.
Since 2017, the United States has been facing higher inflationary pressure. Consumer Price Index (CPI) growth has been above 2.1 percent since 2017, with Producer Price Index growth even higher, indicating that CPI growth is set to accelerate further. Under such circumstances, if the United States levies tariffs as high as 25 percent on $200-300 billion worth of Chinese products, most of which cannot be replaced by imports from other countries, the burden will inevitably be felt by U.S. consumers, ultimately intensifying inflation in the country.
On the contrary China's tariffs on U.S. products have varying rates depending on the substitutability of the products they target, which will alleviate the negative impact on Chinese consumers.
Neither side is set to gain from a trade war. We should not expect engagement to come without a cost, but we must try to significantly reduce the possibility of trade wars and other forms of trade friction and their consequences in the future by both making the opponent feel the pain and trying to seek solutions to ease the adverse impact on ourselves.
We must first rely on our own capabilities and resources instead of external allies in handling this trade war. Only when potential allies in the fight against trade protectionism realize our capacity and determination to address this trade war can a potential united front become a reality. In the meantime, this now unavoidable trade war is also providing new potential opportunities for China, and as time goes by, the world will see China's success in exploring these opportunities.
The author is an op-ed contributor to Beijing Review and a researcher with the Chinese Academy of International Trade and Economic Cooperation
Copyedited by Laurence Coulton
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