BOFIT Viikkokatsaus / BOFIT Weekly Review 2019/20

On Monday (May 13), China announced new tariff increases on imports from the United States. The action was taken in response to the US announcement last Friday (May 10) of further tariff increases on Chinese goods. While both trade negotiation teams denied that talks had been suspended, the situation is getting worse as president Donald Trump has threaten to impose additional tariffs on Chinese goods so far exempt from the hikes.

China’s tariff hikes, which are set to go into effect at the beginning of June, largely apply to the same categories of products on which China imposed 5 % or 10 % retaliatory additional tariffs last September in response to US tariff hikes at that time. About half of products subject to additional tariffs will now have the 25 % rate, with the rest subject to rates ranging from 5–20 %. The most recent tariff increases apply to annual imports worth about 60 billion dollars. If the 25 % tariff hikes of last summer imposed on 50 billion dollars in imported goods is included, the total added tariffs on US imports to China now stands at about 110 billion dollars (as estimated last year). Ahead of the tariff hikes of March 2018, China’s goods imports from the US were around 160 billion dollars a year. Today, that value has fallen to about 140 billion dollars (the respective exports to China reported by the US are USD 130 billion in 2017 and USD 114 billion currently).

The US last week raised the tariff to 25 % on those select goods on which 10 % rate was imposed in September. Chinese imports now subject to the 25 % rate have had an annual value of about 250 billion dollars (estimated last year). The US is now considering imposing tariffs on practically all Chinese imports. Before the tariff is imposed, product must go through a public hearing process. Thus, the wider tariff regime could enter into force as soon as late June or early July. Annual US goods imports from China are still currently at about the same level as before the tariff hikes were imposed, i.e. about 520 billion dollars (China reports its annual exports to the US were about USD 430 billion in 2017 and are currently just under 470 billion dollars).

The views expressed by the parties on the issues at hand differ considerably. The situation got even murkier on Wednesday (May 15) after the US decided to block American cooperation with Chinese telecom giant Huawei. It is still up in air whether trade talks proceed or the late-June Xi-Trump one-on-one meeting at the Osaka G20 conference takes place.

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