China delivers on its trade war threats

The China and United Sates have locked horns in a trade war that is now threatening the entire global economy. China’s Commerce Ministry today informed that it is suspending its obligations to World Trade Organization (WTO) to reduce taxes on 128 US goods including fruit and ethanol.

The interdependence between the United States and China is extremely entrenched. The trade war does not favor any one of the countries; economists have urged President Trump to increase manufacturing base of US rather than imposing taxes on imports from China. The move has also been hailed as extremely detrimental to both countries as businesses across China and US would be worst off in this war.

To put things in context, the US imports more items from China than any other country in the world, more than $505 billion during the year 2017. During the same year, US exported goods worth $ 130 billion to China. The trade is negatively skewed toward US as it is currently facing a $375 billion trade deficit with the China.

The tensions between the two of largest economies in world have been escalating since Mr. Donald Trump became president of the United States. Delivering on one of the key campaign promises Mr. Trump made during in front of his supporters, he has taken a very strong stance against rising trade deficit ($375 billion) in trade with China. However, Mr. Trump has faced extreme criticism from global leaders for unnecessarily opening up Pandora’s Box by initiating a trade war that works in nobody’s favor.

In retaliation to President Trump’s new taxes on Steel and Aluminum imported into the US, China today announced that is implementing a range of new tariffs on 128 US products that include items such as fruits, nuts, wine and steel pipes. China had already warned that if the US strategy to tax Chinese imports continues to go unhindered, the Chinese authorities will have to retaliate in one way or another.

China’s Ministry of Commerce on Sunday suspended WTO obligations to reduce tariffs on 120 U.S. goods. The tariffs on those products will be raised by an extra 15 percent. Eight other products, including pork and scrap aluminum, will now be subject to additional tariffs of 25 percent with effect from Monday (2^nd April, 2018.

Today’s move, however, might just be a warning as the new taxes would affect a total of $3 billion worth of imports from US which analysts dubbed as a drop in the ocean as US exports items worth more than $130 billion to China. “China is moving swiftly on with retaliatory action amid escalating trade tensions between Beijing and Washington”, according to Reuters.  

China move although tough might be a positive sign in the global economy. China is trying to position itself as the good guy in the global economy by protecting rules of the game from US President’s unlawful attacks.