China’s Retaliatory Tariffs Are a Minimal Symbolic Warning

Shows China wants anything but fuel Trump's trade war, remains committed to freedom to trade

Clearly the Chinese know far more about economics than Trump and are acting accordingly

Editor’s note: Albeit hailed by some alternative media as a massive blow to Trump and US economy, the measures Beijing has chosen to enact in response to Trump’s steel and other tariffs have actually been exceedingly mild. They will only affect a measly $3 billion of Chinese imports from the US.

It is a symbolic measure that shows Trump that China has the means to retaliate, but stops short of really increasing barriers to trade. It goes to show the Chinese understand far more about economics and the value of freedom to trade and are doing everything they can to avert a trade war (a warning shot across the bow may actually be useful in that respect) rather than fuel one.


Has Beijing brought a knife to a trade war gunfight?

That’s certainly the way it looks at first glance. Plans to slap levies on $3 billion of U.S. goods affect about 2 percent of China’s imports from the country, compared to the roughly 10 percent of trade in the opposite direction that will be penalized under the U.S.’s plans to impose tariffs on $50 billion of goods from China.

The restrictions will barely be noticed in China itself. There’ll be a 25 percent levy on pork imports from the U.S., but that trade represented just 165,736 metric tons last year — about 13 percent of China’s offshore pork intake, and 0.3 percent of consumption that runs to about 55 million tons a year.

A 15 percent tariff will be levied on fruit, nuts, wine and ethanol, which together amount to another $1 billion or so a year, while the same rates will be levied on, respectively, aluminum scrap and steel pipe.

 Where’s the Beef?

Chinese imports of pork from the U.S. make up only a fraction of consumption

In dollar terms, the restrictions on recycled aluminum will probably be the most significant — but considering that China has been trying to eliminate most imports of non-ferrous scrap anyway, they’ll largely be accelerating an ongoing process rather than reversing any trend.

Bigger categories of imports such as soybeans ($13.8 billion), cars and auto parts ($13.6 billion), aircraft ($12.6 billion) and integrated circuits ($8.7 billion), have largely been spared.

Pressure Points

Most Chinese imports from the US are in business-to-business categories

If you take that as a sign of weakness, think again. As Gadfly and others have argued, the likeliest outcome of a trade war is that participants blow themselves up rather than inflict damage on the enemy. By imposing a few largely cosmetic penalties that hit hardest on industries — agriculture and primary metals — that have supported President Donald Trump’s trade policies, Beijing is firing a warning shot but not truly going on the offensive.

Is That It?

Blink and you’ll miss the $3 billion in goods imports from the U.S. on which China will impose new tariffs

Structurally, China is in the stronger position, with exports to the U.S. (mobile phones, clothing, computers, toys) that are much more dominant as a share of American imports and hit directly at the hip pockets of consumers.

Keeping its powder dry while posing as the real free trader in the dispute will put Beijing in a strong position for the diplomatic battle that lies ahead. That’s what should really worry Washington.

Source: Bloomberg