US-China trade dispute

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The US-China trade dispute

April 10th 2018

China to ease restrictions

Speaking at the Boao Forum for Asia, the Chinese president, Xi JinPing, said he would look to open up China to international companies and their goods and services.

In his speech he announced lower tariffs on imported motor vehicles and pledged to open up the Chinese financial sector and allow greater foreign investment in Chinese companies. He also stated that he would seek to tighten up the protection of intellectual property rights (IPR) – a major concern of the US administration. Sources: CNN Money; China Daily.

Previously:
April 4th, 2018

In a classic tit-for-tat response to the US by the Chinese government, tensions between the two countries escalated today as China announced its plans to put a 25% tariff on over 100 US goods, including tobacco products, US cars and aeroplanes, whiskey, oranges and soya beans.

This follows the US announcement that it would place 25% tariffs on some 1300 Chinese products. The latest moves certainly ratchet up the pressure on both parties to start talks, especially with US commodity prices suffering (over 30% of all US soya beans are exported to China).

April 2nd, 2018

Earlier - China has suspended several tariff concessions and raised other duties on 128 US products in direct response to US tariffs on steel and aluminium imports, imposed in March, 2018.

While several countries, including Canada, Mexico, and EU members are exempt from steel tariffs, China is not – despite the fact that it is not among the top 10 steel exporters to the US.

According to the US administration, the decision to impose up to $60bn on Chinese goods, and limit Chinese investment in the US, was in response to what it regards as the ‘theft’ of intellectual property. International producers must provide China with open access to the technology used in imported goods, and given the level of technology used by some US and EU producers the concern is that technology is too easily transferred between international producers, especially from the US, and China. While technology transfer is clearly seen as a benefit to the recipient country (as a development strategy), it is a long-term cost to the international firms involved.

The bigger picture is that the US has a considerable trade imbalance with China, with a trade deficit in 2017 alone of over a third of a trillion dollars. The view from Washington is that decades of government subsidies to Chinese steel producers in particular have led to considerable excess capacity, with the result that China has been dumping excess output onto global steel markets, causing lost profits and rising unemployment in the steel sector.

Despite the response by China, commentators in China are keen to point out that most of the US’s key exports to China have been left unaffected by the recent tariffs. Indeed, many in China argue that the trade imbalance between the US and China is the result of a structural imbalance between the US and China, rather than deliberate unfair competition, with China exporting commodities and relatively low value-added products, while importing high value services from the US.

The former Chinese finance minister, Lou Jiwei, went further to state that ‘the root cause of the China-US trade problems is Washington's own policy choices, which have led to low saving rate of US residents and an excessively high fiscal deficit of the federal government’.

The consensus is that the recent tariff hikes and tit-for-tat responses are designed to get both parties around the negotiating table – which makes sense given the US’s withdrawal from the Trans-Pacific Partnership (TPP) in 2017.

See also:

Barriers to trade

TPP

Protectionism

Free trade


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