China's latest retaliatory tariffs signaled a focus on key U.S. farming and manufacturing interests, spurring further concern for U.S. industries already been hurt by the spat between the two economic powerhouses. U.S. stocks responded with one of the deepest sell-offs in months.
China's Ministry of Finance on May 13 said it would raise tariffs to up to 25% on $60 billion of annual U.S. exports June 1, an answer to the Trump administration's latest tariff rate hike on Chinese products.
Because China imports far fewer goods from the U.S. than the U.S. does from China, it cannot match U.S. tariffs dollar for dollar, instead of relying on the steepness of rate hikes and targeting politically important products.
A total of 2,493 U.S. exports will be subject to a 25% tariff, including beef, fruit juices, and wine and liquors. A total of 1,078 goods will see a tariff rate hike to 20%, including air conditioners, telephones and pens. And 974 goods will face a 10% tariff rate, including peanut butter, knives and forklifts. An additional 595 U.S. exports to China will maintain a 5% tariff rate.
U.S. farmers have already been subject to tariffs on billions of dollars on annual exports to China, prompting the Trump administration to pledge $12 billion in aid to counter the economic effects of Chinese tariffs. Soybean exports to China dropped 62.3% year over year in the three months ended Feb. 28, according to data from S&P Global Inc.'s Panjiva, as the Chinese state ordered its biggest importers to buy from elsewhere.
Those goods in the $60 billion batch, which also include peanut oil, sugar, cocoa beans and wheat, have already been subject to earlier tariff impositions in the nearly yearlong trade war between the U.S. and China.
The move had been telegraphed. China's Finance Ministry said it was prepared to retaliate against the Trump administration's escalation of tariffs on $200 billion of Chinese goods to 25% from 10% instituted May 10 amid the latest round of trade talks between the countries. The Office of the U.S. Trade Representative also said May 10 that President Donald Trump ordered the agency to begin the process of raising tariffs on "essentially all remaining imports" from China, which it valued at roughly $300 billion annually.
Chris Rogers, research director for Panjiva, said China would continue to retaliate in separate ways, including by slashing purchases of commodities, aircraft and large electrical machinery.
"The graded tariffs are designed in part to protect Chinese industry as much as inflict harm on America," Rogers said.
Doug Barry, a spokesman for the U.S.-China Business Council, said that many jobs are at risk in the escalation of tariffs, particularly in the agricultural sector. "We grow protein for world markets and cannot consume it all domestically," Barry said. "Our farmers must have access to global markets, and China is by far the biggest."
China has all but ceased its imports of U.S. wheat due to the trade war, said Steve Mercer, a spokesman for the U.S. Wheat Associates, meaning that this latest impact will not be detectable for the product. He said wheat farmers "want to see the trade war end as quickly as possible in a way that restores the export opportunities that were building for wheat farmers in China before it started."
Trump was defiant on Twitter ahead of China's announcement, saying in a series of tweets May 13 that there is "no reason for the U.S. consumer to pay the tariffs," contending that tariffs can be avoided by buying products made in the U.S., despite widespread agreement among economists that U.S. consumers that will eventually foot the bill.
"Many tariffed companies will be leaving China for Vietnam and other such countries in Asia," Trump said. "There will be nobody left in China to do business with."
Major U.S. equity indexes did not respond well to the latest shot in the tit-for-tat trade war between the world's two biggest economies, just days after many observers thought the countries were close to agreeing to a deal. The S&P 500 was down 2.51%, to 2,809.08, a little after noon ET on May 13.
Based on Trump's tweets, the two countries are nowhere near signing a deal, Fawad Razaqzada, a market analyst for Forex.com, said in a note. "And for the markets, that is all that matters right now," he said.
Jay Bryson, a global economist for Wells Fargo Securities, said the latest round of tariff escalations raise downside risks to its U.S. real GDP forecast, which is projected to grow 2.8% in 2019 and 2.1% in 2020.