China will raise tariffs on U.S. goods to 84%, up from the previously announced 34%, in a strong escalation of the trade war between the two largest economies in the world.
The latest round of tariffs from China, announced on April 9 and effective April 10, is so far the strongest response to the tariffs that the U.S. has imposed on countries worldwide.
This move comes after the U.S. imposed an additional 84% tariff on Chinese goods starting April 9, raising the total tariffs imposed on China during Donald Trump's current presidency to 125%.
Beijing's tough response contrasts with the reactions of other countries. The phone rang off the hook at the White House as leaders from around the world called to request negotiations to eliminate tariffs.
More than 70 countries have approached the U.S., including Malaysia, where Prime Minister Anwar Ibrahim stated that his country and ASEAN partners will send officials to Washington, D.C. to negotiate.
The European Union is another power that has retaliated against U.S. tariffs. On April 9, the EU announced that it would impose tariffs, mostly at 25 percent, on some U.S. goods starting April 15.
Trade tensions between China and the U.S. have spilled over into other areas. On April 9, China's Ministry of Culture and Tourism issued a travel warning for its citizens regarding travel to the U.S., noting the "recent deterioration" of China-U.S. trade relations and the security situation in the U.S.
China's uncompromising stance on U.S. tariffs has raised alarms from foreign observers that this could escalate the trade war and drag the global economy down even further.
But Chinese analysts told The Straits Times that Beijing has good reason to choose a strong response.
Mr. Qiu Mingda, a senior analyst at the U.S.-based Eurasia Group, said: "The U.S. slapped China in the face with tariffs on April 2. If China sits down and negotiates right after being slapped, that is a sign of weakness and the U.S. will eat them alive at the negotiating table."
Agreeing with this view, Ms. Guo Shan, a partner at the Chinese consulting firm Hutong Research, said: “China's strategy is: escalate to de-escalate.”
She explained that the tariffs imposed by the U.S. on China are so high that even if Beijing can negotiate a reduction of the tariffs, it does not result in much change for the country’s importers and exporters.
“If we respond, we may have a chance; if we do not respond, we will have no chance at all,” she said.
China's chances of surviving the trade war depend on two factors: how well it can shore up its economy and how negotiations between the U.S. and other countries unfold.
Domestically, analysts say as long as China can stimulate enough domestic demand, it can offset the losses from bilateral trade with the U.S. and become an attractive market for other countries.
They expect China to start using the gunpowder it has stockpiled just for this moment.
Ms. Guo said: "China's confidence in its relationship with the U.S. stems from the belief that it can shore up its economy, something that the U.S. has underestimated."
She pointed out that the People's Bank of China could cut interest rates as early as at the next monthly announcement, which is in two weeks. The market is also expecting the Politburo, China's elite decision-making body, to issue a stimulus package of around 1 trillion to 2 trillion yuan (S$184 billion to S$367 billion) at its April monthly meeting.
Mr. Qiu of Eurasia pointed to recent actions that China has taken to stabilize the financial market. For example, this week, China’s Central Huijin Investment and state-owned enterprises jumped into the Chinese stock market and bought shares to prevent a bloodbath.
Another factor in the tension between China and the U.S. is the reaction from the rest of the world.
Some foreign analysts believe that countries seeking access to the U.S. market may be pressured to adopt policies unfavorable to China, such as imposing U.S. tariffs on Chinese goods or restricting Chinese transshipment goods through their territory.
Overall, Chinese analysts believe that the situation is not that bleak.
Mr. Bo Zhengyuan, founding partner of the Plenum research consulting firm in Shanghai, said: “I don’t think this is a prisoner’s dilemma, where China would be isolated and worse off while others exploit China for lower tariffs.”
He noted that most experts do not expect countries wanting to negotiate with the U.S. to be able to achieve a significant reduction in tariff rates.
“What the U.S. wants to do is reduce the trade deficit. Many countries are at a development stage where they can only sell to the U.S. but cannot afford to buy many U.S. goods. That’s a reality,” he said.
Ms. Guo pointed out that because Mr. Trump needs revenue from tariffs to fund the tax cuts he promised and to offset the budget deficit, there is not much room for reducing U.S. tariffs. Thus, countries may leave negotiations in disappointment.
“After a while, these countries will ask themselves: Isn’t it better to do business with China than to negotiate with Mr. Trump?”
China seems to want to woo its Asian neighbors. At a rare high-level central working conference on neighboring diplomacy that concluded on April 9, President Xi Jinping pledged to "enhance strategic relationships" with neighboring countries and strengthen supply chain relations.
He is expected to visit Vietnam, Malaysia, and Cambodia next week on his first overseas trip this year.
Mr. Qiu said: “Southeast Asian countries like Vietnam will become the battleground for the U.S.-China trade war.”
“Although China is a major trade and investment partner for these countries, the U.S. is as well. China will have to act to keep its doors open for trade and investment deals abroad if it wants to attract other countries to its side,” he said.
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