Trade Wars Likely To Escalate As US Plans More Pressure On China

According to media reports, United States (US) officials are planning a two pronged attack on China’s trade in the coming weeks. The first will involve US trade representative detailing products that will be subject to a 25 per cent import tariff - this will be part of the $100 billion worth of the Chinese imports that will be subject to the import tariffs. This list is likely to include products such as mobile phones, apparels, footwear and other such consumer items.

The second involves a separate move by the US Treasury department officials, who will be drafting strict restrictions on Chinese money flowing into US technology companies through joint-ventures, mergers, acquisitions and investments.

The department is looking at how Chinese government is subsidising its own industries, allowing them to expand and invest overseas in an effort to create "technology national champions".

Such transactions are likely to be first targeted. According to the Wall Street Journal, the US administration “is debating whether to make the investment restrictions permanent, even if China changes its industrial policies”

Although business leaders and lobbyists have tried to persuade the US government not to pursue a tariff war, the US administration appears to have sensed a weakening of the Chinese stance and will therefore continue to add more pressure.

Chinese President Xi Jinping, for example, recently made a speech in which he conceded the need to accelerate the pace of liberalisation reforms in China. He promised among other things a lower tariff regime on imported cars and easing of restrictions on foreign ownership of auto-makers in China.

That China imposes a 25 per cent import tariff on cars and restricts ownership at 50 per cent for foreign companies has been a sore sticking point between the US and China.

For the same class of vehicles the US has a 2.5 per cent tariff - this does not involve pick-up trucks, a huge chunk of the US auto market, that is restricted using a 25 per cent tariff on imports.

It’s not clear how the Chinese will respond to these threats from the US. Beijing had initially responded with its own import tariffs on $100 billion worth of goods imported from the US.