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Trade war: US, China levy tit-for-tat import tariff of $16 billion

Elias Glenn & Ben Blanchard | Reuters/Beijing 08 Aug 18 | 11:25 PM

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China’s exports surged more than expected in July despite US duties and its closely watched surplus with the US remained near record highs, as the world’s two major economic powers ramp up a bitter dispute that some fear could derail global growth.

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In the latest move by US President Donald Trump to put pressure on Beijing to negotiate trade concessions, Washington is set to begin collecting 25 per cent tariffs on another $16 billion in Chinese goods on August 23. 

In a statement on its official website late on Wednesday, China’s commerce ministry criticised the US move as being “unreasonable", saying it had no choice but to adopt the same measure on an equal amount of American goods. The tariffs will be activated on August 23, the ministry said, the same day that the US plans to begin collecting 25 per cent extra in tariffs. China’s final list announced on Wednesday differs from an earlier draft it published in June, which included crude oil. The number of categories of goods subject to tariffs rose to 333 from 114 in the June draft, although the total value is unchanged. 

Wednesday’s Chinese data provide the first readings of the overall trade picture for the world’s second-largest economy since US duties on $34 billion of Chinese imports came into effect on July 6.

ALSO READ: No end in sight for US, China trade war as tit-for-tat becomes the norm

All the same, China’s exports for July rose a bigger than expected 12.2 per cent year-on-year, showing little tariff impact for now and beating June’s 11.2 per cent rise and analysts expectations in a Reuters poll for 10 per cent growth. Of more direct consequence in the Sino-US trade war, China’s surplus with the US shrank only marginally to $28.09 billion last month from a record $28.97 billion in June. Washington has long criticised China’s trade surplus with the US and has demanded Beijing cut it. Those demands could get even more strident if the yuan’s sharp drop in recent months raises the ire of the US, which has in the past repeatedly criticised Beijing for manipulating its currency to gain an unfair trade advantage.

Economists say China appears to be taking a more hands-off approach to the yuan, which marked its worst 4-month fall on record between April and July and has provided some reprieve for exporters in the face of the rising trade tensions. ANZ senior China economist Betty Wang said Beijing will likely resist using its closely managed currency as a tool in the trade war. “Currency devaluation, which may have helped exports to some extent, has been largely market-driven in our view and is not a preferred policy tool by Chinese policy makers as part of the retaliation measures," Wang said.

China’s trade with the US also continued to rise in July despite the tariffs, with exports up 11.2 per cent year-on-year, and imports increasing 11.1 per cent. Analysts still expect a less favourable overall trade balance for China in coming months given it’s early days in the tariff brawl. World financial markets have taken a battering in recent months as fears grow that Trump’s “America First" policies could derail a global economic revival.

Several large US firms have said they would adjust their supply chains to source outside of China if tariffs on Chinese goods impacted them, while China’s Haier Group said rising steel prices amid hefty US import tariffs was driving up costs for its business in America. A private survey last week found that the business outlook among Chinese services firms was the second-weakest on record in July in part due worries about the trade war.

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