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Global Trade At A Crossroads: China Is Running Out Of Room To Impose Tariffs On U.S. Goods


MELBOURNE (S&P Global Ratings) Aug. 7, 2018--The U.S.-China trade battle could 
spill over into services. This is because China is running out of room to 
retaliate on goods, according to S&P Global Ratings.

China's recent threat to impose tariffs of 5% to 25% on a further $60 billion 
worth of U.S. goods (5,207 product lines) means that, together with the $50 
billion of goods already announced, about 85% of its American imports 
(totaling $130 billion in 2017) could be taxed. 

The threat is in response to the Trump administration last week announcing 
that it may increase its proposed tariff rate on Chinese imports valued at 
about $200 billion to 25% from 10%. Together with the previously-announced 
tariffs on $50 billion of Chinese imports, the total amount of $250 billion 
represents about 50% of the value of China's annual exports to the U.S. in 
2017.

"With China running out of room to retaliate on goods (i.e., 85% versus 50% 
coverage), China could opt to pursue non-tariff actions affecting services and 
investments from the U.S.," said S&P Global Ratings analyst David Tesher.

The U.S. has a net services surplus with China. A retaliation that spilled 
over into services could hurt U.S. sectors that rely on China's expanding 
import market for growth. This step-up in tensions could also exacerbate 
investor worries about China, damaging business and consumer confidence and 
growth prospects. We note that the trade tension is already weighing on the 
Chinese currency and stock market sentiment.

Analysis from global trade-data specialist Panjiva, our sister division, 
indicates that:
  • China's proposed tariffs on $60 billion of American imports in the 12 months to June 30, include wood products worth $1.83 billion (led by oak wood), liquefied natural gas ($675 million), and mineral ores ($778 million led by copper worth $542 million). Among manufactured goods, the leading items are focused in the technology sector, including computer accessories ($647 million) and IT network equipment ($578 million).
  • Proposed tariffs by the U.S. on $200 billion of Chinese imports include IT network equipment ($24.3 billion imported in the 12 months to May 31) and computer components ($17.6 billion). More broadly, industrial supply chains face disruptions from duties on plastics ($10.6 billion), chemicals ($9.6 billion), and metals ($10.3 billion). Significant consumer goods categories that will face duties include furniture ($29.7 billion), luggage ($8.9 billion), and home appliances ($3.6 billion).
S&P Global Ratings has tracked evolving trade-related events in a research 
series slugged, "Global Trade At A Crossroads." 

RELATED RESEARCH

  • Global Trade At A Crossroads: Trade Risk Treads Water As China Holds Back Response To U.S.' $200 Billion Tariff Threat, July 13, 2018
  • Global Trade At A Crossroads: U.S. Quadruples Down In China Dispute, Sparking Wider Fears Of An All-Out Trade War, June 19, 2018
  • Economic Research: U.S. Biweekly Economic Roundup: Growth Is On The Rise; Tariffs Are Not Too Far Behind, June 15, 2018
  • China's Major Wind Power Operators Can Absorb Tariff Cuts, June 4, 2018
  • Economic Research: Twin Deficits: Mind The Gap(s), May 18, 2018
  • Economic Research: Global Trade At A Crossroads: Will The U.S.-China Trade Tempest Make Landfall Or Blow Out To Sea?, May 4, 2018
  • In The Firing Line: Trump, Trade And EU Corporate Credit, May 1, 2018
  • Global Trade At A Crossroads: How The U.S.-China Spat May Hurt The Tech Sector, And The Latest On Qualcomm And Broadcom, April 25, 2018
  • Global Trade At A Crossroads: As China Threatens Retaliatory Tariffs On U.S. Agricultural Products, Which Ratings Are Most At Risk?, April 6, 2018
  • Economic Research: U.S. Biweekly Economic Roundup: Jobs Hiccup In The Middle Of A Trade Spat, April 6, 2018
  • Global Trade At A Crossroads: U.S. Doubles Down In China Tariff Dispute, Worsening Credit Conditions, April 6, 2018
  • China-U.S. Tariff Dispute Turns Up A Notch, Raising Credit Risks, April 5, 2018
  • Economic Research: The U.S. Economic Outlook Is Solid, But Will Trade Tensions Have The U.S. Trading Places Soon?, March 28, 2018
  • Credit Conditions: North America March 2018--Trade Tensions, Market Swings Pose Risks To Benign Conditions, March 28, 2018
  • Global Trade At A Crossroads: If U.S. Tariffs Trigger A Trade War With China, Corporate Credit Will Suffer, March 23, 2018
  • Global Trade At A Crossroads: What Will Be The Likely Impact Of U.S. Steel And Aluminum Tariffs On Latin America?, March 20, 2018
  • S&P Global Economists Release A "Field Guide" To A Potential Sino-U.S. Trade War, March 19, 2018
  • Credit Trends: Global Bond Upgrade Potential: Will Trump Tariffs Affect The Metals, Mining, And Steel Sector's Lead In Upgrade Potential?, March 14, 2018
  • Credit FAQ: Japan's Top Steelmakers Can Withstand U.S. Tariffs And Increasingly Aggressive Investments, March 12, 2018
  • Global Trade At A Crossroads: U.S. Steel And Aluminum Tariffs Raise Risk Of Retaliatory Spiral, March 9, 2018
  • Global Trade At A Crossroads: U.S. Steel And Aluminum Tariffs Will Likely Have Small Direct Impact But Risk Larger Knock-On Effects, March 9, 2018
  • Trump Tariffs Forge Better Credit Quality For U.S.-Based Steel And Aluminum Producers With A Protectionist Stance, March 2, 2018
  • De-Globalization Could Disrupt U.S. Supply Chains, May 30, 2017



This report does not constitute a rating action.
 
S&P Global Ratings, part of S&P Global Inc. (NYSE: SPGI), is the world's 
leading provider of independent credit risk research. We publish more than a 
million credit ratings on debt issued by sovereign, municipal, corporate and 
financial sector entities. With over 1,400 credit analysts in 26 countries, 
and more than 150 years' experience of assessing credit risk, we offer a 
unique combination of global coverage and local insight. Our research and 
opinions about relative credit risk provide market participants with 
information that helps to support the growth of transparent, liquid debt 
markets worldwide.
Primary Credit Analysts:David C Tesher, New York (1) 212-438-2618;
david.tesher@spglobal.com
Terry E Chan, CFA, Melbourne (61) 3-9631-2174;
terry.chan@spglobal.com
Media Contacts:Richard J Noonan, Melbourne (61) 3-9631-2152;
richard.noonan@spglobal.com
April T Kabahar, New York (1) 212-438-7530;
april.kabahar@spglobal.com

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