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China's Response to Tariff Threat

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China's Response to Tariff Threat

The Trump administration has announced the list of Chinese imports valued at about $200 billion on which the U.S. may impose 10% tariffs as early as September. While S&P Global Ratings believes this action doesn't necessarily raise the risk of an all-out trade war, the tariffs would affect some industries and individual corporate borrowers.

The targeted imports include technology components (such as circuit boards) and consumer products (such as food, textiles, and furniture). Together with the previously announced 25% tariffs on $34 billion of Chinese imports and the scheduled tariffs on another $16 billion, the total amount of $250 billion now represents about half the value of China's annual exports to the U.S.

However, the Chinese government, after initially reacting angrily, appears to be calmly considering its options. The absence of an immediate tit-for-tat response lends hope to the belief that China-U.S. trade negotiations aren't completely off the table.

We are obviously not sanguine about the risk. Our current base-case assumption is that the tariffs, if imposed, will not likely greatly affect either economy. However, they would affect some industries and individual corporations. The dispute has already contributed to jitters in the financial markets and is coloring business investment decisions. We note that China can't match the U.S.' $200 billion figure because its American imports totaled just $130 billion last year. Should China opt to pursue non-tariff actions that affect services and investments, it could damage global business and consumer confidence, investment prospects, and growth.