US tariffs on Chinese imports to take effect

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US President shakes hands with China's President Image copyright Getty Images

Asia is bracing for the opening salvo in a tit-for-tat trade battle, with the US due to impose 25% tariffs on $34bn of Chinese goods on Friday.

China is expected to match the move with a 25% levy on US goods to the same value on the same day.

The tariffs would mark a significant escalation in the trade dispute between the world’s two biggest economies.

The row has caused turbulence on the world’s stock markets and could hurt global trade and growth.

What is happening on Friday?

President Donald Trump has ordered the US to impose tariffs on $50bn worth of Chinese goods – and China has said it will retaliate in kind.

The first round of these tariffs are due to take effect on Friday. Businesses will have to pay 25% additional tax on $34bn of certain Chinese products they import – including aircraft tyres and commercial dishwashers.

China will also start collecting a 25% levy on $34bn of US goods such as agricultural products and cars.

Ahead of the planned tariffs, China said that the “US is opening fire on the entire world, including itself”.

How did we get here?

The move is part of Mr Trump’s protectionist agenda, which has undermined the free trade policies that have shaped the global exchange of goods in recent decades.

He has said the tariffs are aimed at stopping the “unfair transfers of American technology and intellectual property to China” and protecting jobs.

The White House said it would consult on tariffs on the other $16bn of products, and would apply these later.

Mr Trump has already imposed tariffs on imported washing machines and solar panels, and started charging levies on the imports of steel and aluminium from the European Union, Mexico and Canada.

China has vowed to fight back to protect its economy.

What else might the US do?

In addition to the $16bn under consultation, Mr Trump has flagged there could be more tariffs in store.

He threatened a 10% levy on an additional $200bn of Chinese goods if Beijng “refuses to change its practices”.

China said it would respond with measures of a “corresponding number and quality” if the US produced a list of products that could be hit.

Image copyright Getty Images

What could the fallout be?

Stock markets have been jittery ahead of the announcement and are estimated to have lost market value due to trade tensions.

The US tariffs announced so far would affect the equivalent of 0.6% of global trade and account for 0.1% of global GDP, according to Morgan Stanley.

The bank estimates that every $100bn of imports affected by the tariffs represents about 0.5% of global trade and 0.1% of global GDP.

Analysts are also concerned about the impact on others in the supply chain and about an escalation of tensions between the US and China in general.

Washington-based think tank the Peterson Institute for International Economics (PIIE) expects US tariffs on Chinese goods, which it says particularly target computers and electronics, to hurt multinationals more than China as well as other firms in Asia.

“China will feel some pain but not as much as these firms in the supply chain that contribute such a large share of the value added in Chinese exports,” Peterson wrote.

The fight could also affect other parts of China-US relations. Given that the US buys nearly four times as much from China as it sells to them, China may have to seek avenues other than trade to retaliate if the battle escalates.

“China can impose leverage in areas outside the economic sphere. In the most extreme case China could undermine the ability of the Trump administration to conclude a nuclear deal with North Korea,” Peterson added.

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