China counters Trump’s tariff with measured opening move

Beijing has taken its decision. After the warnings of counter measures and after the conversation with Washington and urged to “meet China Hafway”, it has decided to hit back – or at least threatened to retaliate with his tariff .

China said it will implement 15% tariffs on coal and liquefied natural gas products as well as 10% tariffs on crude oil, agricultural machinery and large engine cars imported from US from February 10.

The date is important. This means that it is still time for the world’s two largest economies to retreat from the verge of business war.

According to the White House, the two leaders have set a call at the end of this week, and despite today’s announcement, there are indications that China is in listening mode and keeping the door open for talks.

First, China’s counter measures are limited in scope compared to 10% levy on all Chinese goods going to the US by Donald Trump.

America is the largest exporter of liquid natural gas worldwide, but China is only about 2.3% of those exports and its major car imports from Europe and Japan.

This calculation of goods and selective targeting can be an inaugural shot by Beijing, which is a way to gain some bargaining power in front of any dialogue.

Officers in China can be encouraged from a cordial beginning of US-China relations since taking charge of Trump.

The US President said that he had a “very good” phone call with President Xi before his inauguration ceremony, which was attended by the highest level of Chinese officer sent to such an event. He has also suggested that he expects to work with Xi when he resolves the Russia war in Ukraine.

President Xi probably does not want to fight with Trump, as he is busy trying to sideline his own sick economy.

It is also a familiar area for the two leaders – although they may not be eager to remove the past. The US-China relations had a honeymoon period during Trump’s last term, before the relationship became sour.

It would also be more difficult to make a deal with China with Trump compared to Mexico and Canada – and a lot will depend on what he wants from Beijing.

China is the main economic rival of Washington and has been the target of the Trump administration by cutting out of major supply chains to the country.

If Trump asks for a lot, Xi may feel that he can walk away and there will be a limit on how far he is ready to push.

The US President has been working with more confident China ever since he returned. Beijing has expanded its global footprint, and is now a major trade partner for more than 120 countries.

In the last two decades, it has constantly tried to reduce the importance of trade for its economy and increase domestic production. According to the Council on Foreign Relations, today, more than 60% of the 2000s, it is an account of import and exports for about 37% of China’s GDP.

10% tariff will sting, but Beijing may feel that it can absorb the blow – for now.

It would be feared that President Trump is serious about increasing the percentage of 60% pledged during his campaign or he will continue to use the threat of tariff to put on Xi’s head as a recurring diplomatic tool.

If this happens, Beijing would want to be prepared and it means having a clear strategy in this case.

Last time the leaders signed a deal, it was not well over.

Both countries released hundreds of billions of dollars of tariffs worth hundreds of billions of dollars of goods since 2018.

It lasted for more than two years, until China agreed to spend an additional $ 200BN (£ 161BN) on US goods in 2020.

Washington hoped that the deal would reduce the huge trade deficit between China and the US, but the plan derailed by Kovid epidemic and according to Chinese customs data, the deficit now sits on $ 361BN.

There are important challenges for China as it is thinking several steps ahead in any conversation.

Beijing still sells about four times more goods to the United States – and during the first term in Trump’s office, it went out of objects for the target.

Analysts believe that China is now looking at a wide range compared to tariffs to run on the trade war ramp.

The clock is going on. This is not a complete trade war, yet. Businesses around the world must be looking at whether the two leaders can reach any compromise at the end of this week.