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US-China trade war intensifies with new actions

Jul 12, 2018 | 10:27 PM | Michael Roh

Tags  US Trade Representative, China, Section 301 tariffs, retaliatory tariffs, trade war


NEW YORK — The United States Trade Representative (USTR), responding to retaliatory tariffs from China, has released a third list of Chinese products that could soon be hit with 10% duties, stoking the flames of an escalating US-China trade war.

“In light of China’s response to the $50 billion action announced in the [Section 301] investigation and its refusal to change its acts, policies, and practices, it has become apparent that US action at this level is not sufficient to obtain the elimination of China’s acts, policies, and practices covered in the investigation,” according to a document issued by the USTR on June 10, requesting comments on the proposed duties.

“Accordingly, the Trade Representative is proposing to modify the action in this investigation by maintaining the original $34 billion action and the proposed $16 billion action, and by taking a further, supplemental action,” it added.

The list, comprised of 6,031 products, includes metals and metal products, food products, appliance and vehicle parts, chemicals, building materials, and mining equipment, and is valued at $200 billion, according to the USTR document.

The list builds upon two prior lists, which had been announced by the USTR on June 15. The first list slapped 25% duties on 818 Chinese products valued at $34 billion, while the second list identified 284 Chinese products valued at $16 billion, which will likely be hit with 25% duties after public comments are heard.

The Chinese government had responded on June 16 with its own pair of lists targeting US goods, slapping 25% duties on the first list of 545 US products valued at $50 billion, which came into effect on July 6. A second list targeting 114 US products valued at $16 billion was also announced on June 16, but an implementation date has not yet been revealed.

In turn, US President Donald Trump announced in an official White House statement on June 18 that he had directed the USTR to “identify $200 billion worth of Chinese goods for additional tariffs at a rate of 10 percent” if China follows through with its retaliatory tariffs.

The Chinese government announced on July 6 that it would go forward with the additional tariffs in its second list.

China’s ministry of commerce released a statement on July 12, accusing the US of “insisting on fighting a trade war with China.”

“It is fair to say that this largest trade war in the economic history launched by the US is not a trade war between the US and China, but a global trade war,” the statement read.

Written comments on the USTR’s duties on the third list of targeted Chinese products are due on August 17, and a public hearing will be held from August 20-23.

The US-China Business Council (USCBC) expressed its disapproval with the USTR’s announcement.

"Enough is enough. The United States and China need to stop the needless escalation of a tariff war and start working on solutions that will address the real concerns that American companies have about China’s intellectual property protection and technology transfer policies. Those are the right issues to focus on, but tariffs are the wrong way to solve them. Business wants solutions, not sanctions,” USCBC president John Frisbie said in a statement on July 11.

“In the absence of a negotiated outcome, tariffs on $250 billion in Chinese imports will be in place by mid-September,” according to USCBC.

Market impact

It may be too early to gauge the full impact that the tariffs will have on metal markets while market participants digest the news, but some offered their predictions.

“Our clients are in assessment mode right now. They’re trying to determine the effects of these potential new tariffs on their manufacturing and supply chains,” Timothy Brightbill, a partner at law firm Wiley Rein, told American Metal Market.

Some non-ferrous market participants told American Metal Market that the tariffs are unlikely to have an immediate impact on markets, but a prolonged trade war between the world’s two largest economies could significantly impact global demand, and by extension the base metals complex.

The standoff with China, combined with ongoing trade disputes with other nations could lead to uncertainty that will stifle business investment and to spiraling inflation, a steel buyer warned.

Construction costs were already escalating much faster than they had in the past because of trade spats between the US and its traditional trading partners, he noted.

China can’t change its economy quickly to please Trump, nor can Trump force multinational companies – especially given deep uncertainty over the direction of US policy – to invest more in their operations in the US, the steel buyer said.

And it won’t be Trump or Xi who pays the price for a trade war. “Ultimately it’s going to hurt consumers – and the largest share of [US] GDP is consumption,” he warned.

US market participants are carefully watching actions by the US and Chinese governments, having seen how Section 232 tariffs impacted US premiums.

Those tariffs boosted steel and aluminium prices in the US to multiyear highs, and incited retaliatory tariffs from several US trade partners, including Canada, China, the European Union, Mexico and Russia.

American Metal Market’s hot-rolled coil index climbed to $45.84 per hundredweight on July 5, up 40.5% from $32.63 per cwt at the start of the year, and the highest level recorded since October 2008.

American Metal Market’s P1020 Midwest premium soared to a multiyear high of 22-23 cents per lb in April, the highest level for the premium since February 2015. The premium has since eased to 19.75-20.5 cents per lb in the latest assessment on July 10.

Michael Cowden and Dalton Barker, both in Chicago, contributed to this report.

Michael Roh
michael.roh@amm.com



 

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