Trade War: An Eye for An Eye and A Tooth for A Tooth

On Jul 6th Friday, a U.S. cargo ship, Peak Pegasus carrying 70K tonnes soybean got the attention of China’s social media when it’s steaming toward Dalian at full speed. It is expected to arrive in Dalian on Friday morning before China impose 25% tariffs on imports from the U.S. Peak Pegasus could avoid a 25% tax, around $6 million, if it rushed to complete customs declaration before July 6.

U.S. administration announced imposed additional 25% tariffs on $34 billion Chinese imports from July 6th. Immediately Beijing followed up and planned to impose the same tariffs on the identical $34 billion worth of American imports.

U.S. will hit 25% tariffs of the high-tech product from China, especially the industry listed in “Made in China 2025” that Chinese government aims to develop and achieve global domination including aviation, EV vehicles, and communication technology and machinery. As a reaction, China intends to suspend the tariff discount and take 25% tariff in agricultural product. There are 545 products in the tariffs lists, about 91% are agricultural products. The U.S. trade deficit with China was $375 billion in 2017.

China goods in the tariffs list

  • High-tech products made in China, including smartphone, PC, TV etc.
  • Vehicles including airplane parts, ferry boats, EV cars.
  • Industrial machinery, like nuclear reactors, agricultural produce machines, etc.
  • Medical devices, X-ray generators, pacemakers etc.

U.S. goods in the tariffs list

  • Poultry, including frozen beef, pork etc.
  • Fruit and vegetables, like apples, cherries, avocados etc.
  • Seafood, including lobster, octopus etc.
Import volume of soybeans worldwide from 2013/14 to 2017/18 via statista

The U.S is the world’s biggest soybean exporter. Soybeans have been the main target as trade tensions increasing between China and U.S. In 2016/17, China import soybean amounted to 92.5 million tons, accounting for 66% import volume of soybeans worldwide. [1] U.S. sales around 35.8 million tonnes, or around 70% of U.S.’s exports in 2016. [2] Even as the trade war happened, China’s overall soybean imports are expected to increase in 2018 because of the growing demand from livestock herds.

Major countries of destination for U.S. soybean exports in 2016 via statista

U.S. people will soon find they need to pay more money for electrical goods than before. As the world’s factory, China imports components from other countries and assembles them into intermediate/final products. Manufactures can shift their factories to other sites but supply chain moderation needs time and investment. Also, there is no safe place now because the U.S. is not only having the trade war with China. EU, Canada, and Mexico are also on brink of trade ware with U.S. American Motor maker Harley-Davidson announced to transfer the factory outside the U.S. to avoid EU countermeasure tariffs against the U.S.

U.S. and China will fight and negotiate at the same time and finally reach in a deal.  However, it’s an unknown zone in front of us. The trade war indeed would give a devastating impact on economic growth as it continues.

[1] Import volume of soybeans worldwide from 2013/14 to 2017/18, by country
[2] Major countries of destination for U.S. soybean exports in 2016
[3] China-U.S. Trade Issues

 

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