- Even without the trade war, China-U.S. relations have continued to deteriorate, with an uptick in tensions between the two countries over the South China Sea, Taiwan, human rights and China’s plan to re-create the old Silk Road, called the Belt and Road Initiative.
U.S. President Donald Trump’s tariff increase to 25% on $200 billion worth of Chinese goods took effect on Friday, and Beijing said it would strike back, ratcheting up tensions as the two sides pursue last-ditch talks to try salvaging a trade deal.
China’s Commerce Ministry said it “deeply regrets” the U.S. decision, adding that it would take necessary countermeasures, without elaborating.
The hike comes in the midst of two days of talks between top U.S. and Chinese negotiators to try to rescue a faltering deal aimed at ending a 10-month trade war between the world’s two largest economies.
Chinese Vice Premier Liu He, U.S. Trade Representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin talked for 90 minutes on Thursday and were expected to resume talks on Friday.
The Commerce Ministry said that negotiations were continuing, and that it “hopes the United States can meet China halfway, make joint efforts, and resolve the issue through cooperation and consultation”.
With no action from the Trump administration to reverse the increase as negotiations moved into a second day, U.S. Customs and Border Protection imposed the new 25% duty on affected U.S.-bound cargoes leaving China after 12:01 a.m. EDT (0401 GMT) on Friday.
Goods in the more than 5,700 affected product categories that left Chinese ports and airports before midnight will be subject to the original 10% duty rate, a CBP spokeswoman said.
The grace period was not applied to three previous rounds of tariffs imposed last year on Chinese goods, which had much longer notice periods of at least three weeks before the duties took effect.
“This creates an unofficial window, potentially lasting a couple of weeks, in which negotiations can continue and generates a ‘soft’ deadline to reach a deal,” investment bank Goldman Sachs wrote in a note.
“Given this detail, downside to sentiment might be slightly more muted than if the tariff increase came with a ‘hard’ deadline. This also leaves an opportunity for the two sides to reach an agreement in the next couple of weeks, though challenges remain.”
Trump gave U.S. importers less than five days notice about his decision to increase the rate on the $200 billion category of goods to 25%, which now matches the rate on a prior $50 billion category of Chinese machinery and technology goods.
U.S. stock futures fell and Asian shares pared gains after the U.S. tariff hike, with investors worried that a protracted trade war could hamper global economic growth.
E-mini futures for U.S. S&P500 slipped, last down 0.5% in volatile trade. MSCI’s broadest index of Asia-Pacific shares outside Japan was more than 1% lower. Chinese share markets fell on their reopen after the lunch break, but quickly recovered ground.
Michael Taylor, managing director and chief credit officer for Asia-Pacific at Moody’s Investors Service, said the U.S. move exacerbated uncertainty in global trade, added to U.S.-China tensions, and negatively affected global sentiment.
“The higher tariffs could also lead globally to the repricing of risk assets, tighter financing conditions and slower growth,” Taylor said.
The biggest Chinese import sector affected by the rate hike is a $20 billion-plus category of internet modems, routers and other data transmission devices, followed by about $12 billion worth of printed circuit boards used in a vast array of U.S.-made products.
Furniture, lighting products, auto parts, vacuum cleaners and building materials are also high on the list of products subject to the higher duties.
Gary Shapiro, chief executive of the Consumer Technology Association said the tariffs would be paid by American consumers and businesses, not China, as Trump has claimed.
“Our industry supports more than 18 million U.S. jobs – but raising tariffs will be disastrous,” Shapiro said in a statement.
“The tariffs already in place have cost the American technology sector about $1 billion more a month since October. That can be life or death for small businesses and startups that can’t absorb the added costs.”
Economists and industry consultants have said it may take three or four months for American shoppers to feel the pinch from the tariff hike but retailers will have little choice but to raise prices on a wide range of goods to cover the rising cost of imports before too long, according to economists and industry consultants.
Even without the trade war, China-U.S. relations have continued to deteriorate, with an uptick in tensions between the two countries over the South China Sea, Taiwan, human rights and China’s plan to re-create the old Silk Road, called the Belt and Road Initiative.