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Tit for tat over trade tariffs

Tit for tat over trade tariffs
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By Charles F. Moreira, Editor

Trade tariffs imposed or threatened to be imposed on steel, aluminium, cars, solar panels and other imports into the US as part of President Donald Trump’s election promises to reduce the US trade deficit and to protect American industry and jobs, has resulted in the US’s trading partners to impose or threaten to impose tariffs on American goods in retaliation.

In March 2018, the US had imposed tariffs on aluminium and steel imports from China, India, Russia, Japan and Turkey and later extended it to include the European Union, Canada and Mexico which had earlier been exempt.

Russia Today of 22 June 2018 reported that Trump had repeated his warning to the European Union that the US would impose a 20% tax on imports of cars for EU automotive manufacturers unless the EU lifts its trade barriers on imports from US corporations.

The day before, Russia Today reported the China’s Commerce Ministry said that the country is ready to retaliate against any protective steps the US may take should Trump carry out his threat to impose an additional US$200 billion in tariffs on China’s goods on top of the US$50 billion already imposed, with the ministry’s spokesman Gao Feng saying that yield in the face of the ‘big stick’ approach adopted by the US in negotiations.

The same day, the European Commission said that it had approved initial retaliatory imports tariffs on US goods worth US$3.2 billion, primarily including imports of motorcycles, motor boats, orange juice, bourbon, peanut butter, cigarettes and denim from the US, with a second batch of tariffs on imports worth US$4.3 billion if the trade dispute is not resolved.

“We did not want to be in this position”, said EU trade official Cecilia Malmstrom. “The unilateral and unjustified decision of the US to impose steel and aluminum tariffs on the EU means that we are left with no other choice”.

Meanwhile, India increased import tariffs on a number of goods worth US$240 million in retaliation to US levies on steel and aluminum imports from India, with 70% tariffs on chickpea imports from India coming into effect on 4 August 2018.

Earlier that week, Russian economy ministry pledged to retaliate against Washington’s unilaterally imposed steel and aluminium tariffs. In May 2018, Russia had informed the World Trade Organization (WTO) that she could retaliate with tariffs worth US$538 million on imports from the US – equivalent to what Russia stands to lose due to US levies on imports from Russia.

“The US continues to apply protective measures by imposing additional import duties on steel and aluminium, and refuses to provide compensation for Russia’s losses. That is why Russia is using its WTO rights and introducing balancing measures with respect to imports from the United States,” said Russia’s Economic Development Minister Maksim Oreshkin.

In May 2018, Japan’s Foreign Ministry said it had plans to impose tariffs on US goods worth US$451 million — equivalent to what Japan stood to lose due to US levies recently imposed on imports of Japanese metal products.

India and the EU also opened a WTO dispute over what they saw as protectionist measures by the US. China followed with its objections to the WTO, whilst Turkey said it planned to do likewise soon.

On top of that, Canada said it would tax US imports of steel, aluminium and such goods as whisky, orange juice and other food products, while Mexico is planning to impose levies on US flat steel, pork, sausages and food preparations, apples, grapes, cranberries and various cheeses.

In retaliation to tariffs on imports of aluminium and steel imposed in March, Turkey’s Ministry of Economy announced tariffs worth US$267 million on imports from the US, such as coal, paper, walnuts, tobacco, rice, whiskey and cars after negotiations between Turkey and the US on this issue had made no progress.

Turkey’s Economy Minister said, “Turkey is committed to active, robust and reciprocal trade relations with the US — but with the understanding that fairness cannot be one-sided. We cannot and will not allow Turkey to be wrongly blamed for America’s economic challenges”.

Can China beat Trump in this game?

A Finance Twitter article of 21 June 2018 argues that despite China being forced to retaliate, Trump however has the upper hand, since China has a US$375 billion trade surplus with the US, with US imports from China worth US$506 billion versus US$130 billion of US exports into China.

Despite China having to safeguard its own interests and its people whilst defending free trade, she knows that she is at a disadvantage in this tit-for-tat trade battle with the US and China may eventually have to yield or compromise.

However, besides threatening to sell US Treasury bonds, China could use bureaucratic means to bring pressure to bear upon US corporations such as Apple, Starbucks, Walmart, General Motors and Boeing which operate within China, to the extent that they will bring pressure upon the US president to yield, just as China successfully retaliated against a plan for the US Army to deploy Thermal High Altitude Area Defence (THAAD) system in South Korea, which China claimed could be used to spy on China, by bringing pressure to bear on units of the South Korean conglomerate ,the Lotte Group, which are operating in China.

Lotte operates over 80 supermarkets in China and the retaliatory measures ranged from fines for illegal advertising to suspension of sales of Lotte products, cyber attacks on Lotte’s website and confiscation and quarantine of a shipment of Lotte Confectionery’s yogurt-flavoured candy from South Korea.

China’s government inspectors also conducted inspections on over 150 factories, storage facilities and stores of Lotte affiliates, including Lotte Confectionery, Lotte Chemical, Lotte Department Store and Lotte Mart and construction of the US$2.6 billion Lotte World Town was halted. This hurt Lotte which derives US$2.64 billion of its revenue from China.

In 2017, China was offended by a map published in the Japanese furniture, household goods and clothing retailer Muji’s winter/fall catalogue which showed the disputed Senkaku Islands as being part if Japan and Muji withdrew the catalogue after it received an instruction from China’s State Bureau of Surveying and Mapping in October that year.

Bloomberg Intelligence reported that China contributed more than a quarter of General Motors’ profit in 2017 last year – selling a record 4.04 million GM vehicles and about 12% of Ford’s.

China also is the world’s biggest market for electric vehicles, with Tesla having sold 15,000 vehicles worth US$2 billion in China in 2017, whilst Boeing said that it expects China’s airlines to buy over US$1 trillion worth of aircraft over the next 20 years. Also, Apple’s revenue from mainland China was worth US$46 billion and Starbucks has 3,300 outlets in China.

So if pushed into a corner by the US, China still has a trump card which it can deal by taking action against the business of US corporations within the China market, since the Communist Party of China controls the domestic media and China’s government can organise boycotts very quickly with devastating effect on US corporations operating there.

Hopefully, these trade related tit for tat measures between these countries will cool down and common sense prevail.

 

 

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