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Abu Dhabi, UAEFriday 19 October 2018

Trade war threats get real as US and China impose tariffs

President Donald Trump imposes tariffs on $34 billion of Chinese imports in the early hours of Friday morning 

US president Donald Trump imposed tariffs on $34 billion of Chinese imports on Friday morning, sparking retaliation threats from China. Evan Vucci / AP Photo
US president Donald Trump imposed tariffs on $34 billion of Chinese imports on Friday morning, sparking retaliation threats from China. Evan Vucci / AP Photo

US President Donald Trump fired the biggest shot yet in the global trade war by imposing tariffs on $34 billion of Chinese imports. China immediately said it would be forced to retaliate.

The duties on Chinese goods started at 12:01am Friday in Washington, which is just after midday in China. Another $16bn of goods could follow in two weeks, Trump earlier told reporters, before suggesting the final total could eventually reach $550bn, a figure that exceeds all of US goods imports from China in 2017.

US customs officials will begin collecting an additional 25 per cent tariff on imports from China of goods ranging from farming plows to semiconductors and airplane parts. China’s officials have previously said they would respond by imposing higher levies on goods ranging from American soybeans to pork, which may in turn prompt Trump to raise trade barriers even higher.

“The United States has violated World Trade Organization rules and ignited the largest trade war in economic history,” China’s Commerce Ministry said in a statement. “Such tariffs are typical trade bullying, and this action threatens global supply chains and value chains, stalls the global economic recovery, triggers global market turmoil, and will hurt more innocent multinational companies, enterprises and consumers.”

The statement didn’t provide details on exactly how China would respond.

It’s the first time the US has imposed tariffs directly aimed at Chinese goods following months in which Trump accused Beijing of stealing American intellectual property and unfairly swelling America’s trade deficit.

The riskiest economic gamble of Trump’s presidency could spread as it enters a new and dangerous phase by imposing direct costs on companies and consumers globally.

“Once these tariffs start going into effect, it’s pretty clear the conflict is real,” said Robert Holleyman, former deputy US trade representative under President Barack Obama and now a partner at law firm Crowell and Moring. “If we don’t find an exit ramp, this will accelerate like a snowball going down a hill.”

Recent US tariffs on steel and aluminum antagonised fellow developed nations and drew return fire from countries including the European Union and Canada.

Chinese state media has run numerous commentary pieces on the dispute over the past few days criticising the American position.

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As the world’s most developed nation and the rule-maker of the current global governing system, there is “astounding absurdity” in the US complaining that it’s been bullied in trade, the People’s Daily, the flagship newspaper of the Communist Party of China, said in a Chinese language commentary on Friday.

Iconic American companies such as Harley-Davidson Inc. are among those set to suffer. The motorcycle maker said this month it may move production out of the US to avoid EU tariffs on its bikes. American businesses from Apple Inc. and Walmart Inc. to General Motors Co. all operate in China and are keen to expand. That hands Chinese President Xi Jinping room to impose penalties such as customs delays, tax audits and increased regulatory scrutiny if Trump delivers on his threat of bigger duties on Chinese trade.

How China could hurt US businesses in China - stocks down

Chinese stocks have taken a beating in recent weeks, entering a bear market, as concerns about the trade war have mingled with worries about China’s ability to control its debt and maintain growth. US stocks are up slightly more than 2 percent this year as investors have weighed the threat of trade frictions against the strong performance of the US economy.

Trump is doubling down on his promise to put “America First” in the nation’s foreign and economic policies. He blames China for a bilateral trade deficit of $336bn and for costing US manufacturing jobs.

Politically, the get-tough-on-China campaign is aimed at helping score points with the voters who propelled Trump to the White House even though some members of his Republican party – particularly those in farming states that could be hit by retaliation – urged a retreat. Failure that brings economic pain could cost Republican seats in November’s mid-term elections.