BOFIT Viikkokatsaus / BOFIT Weekly 2019/35

In response to the US decision on August 13 to impose additional punitive tariffs on Chinese products at the start of September and in mid-December, China announced last Friday (Aug. 23) that it was imposing 5 or 10 % tariffs on about 5,000 American products. China will also reinstate in December its punitive tariffs on American cars and car parts that have been exempt from the retaliatory tariff scheme since the start of the year. The new tariffs target imports from the US valued at 75 billion dollars a year.

Immediately after China acted, president Donald Trump announced he was increasing the level of the punitive tariffs set to go into effect at the start of September from 10 % to 15 %, and all 25 % tariffs in place would rise to 30 % at the beginning of October. Trump exhorted American firms to seek alternatives to China and shift production back to the US.

The likelihood of resolving the US-China trade dispute in the near future is small as the conflict only seems to widen further. Trump linked trade talks to the Hong Kong demonstrations, saying that if China resorted to force in Hong Kong the chances of making a “deal” would become even smaller. Members of the US Senate this week proposed that the government cancel a decision by one of the biggest government pension funds to invest in China. China has let the yuan’s exchange rate slide on currency markets as the trade war has ramped up. The yuan has lost about 3 % of its value against the dollar and euro this month.