BOFIT Viikkokatsaus / BOFIT Weekly 2018/13

The Trump administration announced plans last Thursday (Mar. 22) to impose a 25 % tariff on certain high-technology products from China in response to China's alleged intellectual property infringements. As part of the move, the US filed a complaint with the WTO against China's discriminatory technology licencing practices, which the Trump administration says prevents foreign firms from competing on Chinese markets.

The list of tech products subject to tariffs should be released by early April, after which begins a month-long series of hearings before the tariffs enter into force. Products under scrutiny are part of China's "Made in China 2025" industrial policy programme, which Western business organisations have criticised as protectionist. Imports of products subject to the new tariffs are estimated to be worth some 50–60 billion dollars, or about 10 % of US imports from China.

While the new tariffs raise the threat of a trade war, they also put pressure on the US and Chinese to get to the bargaining table to discuss opening up China's markets and improving conditions for American firms operating on Chinese markets. US negotiators seek faster liberalisation of financial markets, reduced subsidies to state-owned enterprises, lower duties on imported cars, a more transparent regulatory system and abolishing the practice of making American firms partner with a Chinese firm to conduct business in certain branches in the Chinese markets.

China has emphasised its desire for negotiated solutions and indicated a willingness to speed up implementation of certain reforms. But it has also stated its readiness to implement retaliatory measures. Immediately after Trump's tariff threat last week, China imposed retaliatory import duties on e.g. US pork products and fruits, as well as on steel pipe in response to the US announcement earlier this month to place new tariffs on steel and aluminium. US steel and aluminium tariffs, as well as China's just-announced retaliatory measures, only marginally impact US-China bilateral trade.