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Newsletter – First Impressions of the US and China Trade Friction

First Impressions of the US and China Trade Friction

As noted in a report of Global Trade Alert that the US had initiated actions on their trade protection on 143 items in 2017,which comparatively listed 112 items more than the year before. Trade protection policy was not solely carried out by President Donald Trump in recent years, but also former President Obama directed such during his both presidency periods, which averagely exceeded the amount of which Mr. Trump indicated. The magnificent difference of the new trade protection policies is putting a red flag on the trade between the US and China, which is purposely targeting on China’s 2025 Plan. In this April, Trump’s newly published a draft list was about 1,300 Chinese products slated for tariffs. The list released Friday, June 15th, 2018 incorporates feedback and criticism received in the ensuing weeks. It contains about 1,100 items, including about 285 newly proposed items, such as items for the semiconductor industry, that are subject to further review.

The lead began since the WTO Conference in December 2017, under the “sugar coated pressure” of custom taxation of the US, the US itself, EU and Japan jointly declared to enhance the cooperation among each other in order to resist the treads from a “third country”. The US President Donald Trump is to impose 25% tariffs on $50bn worth of Chinese goods, accusing Beijing of intellectual copyright theft. Tariffs that affect more than 800 products worth $34bn in annual trade are due to come into effect on 6 July. The White House said it would consult on tariffs on the other $16bn of products, and would apply these later. Mr Trump said the tariffs were “essential to preventing further unfair transfers of American technology and intellectual property to China, which will protect American jobs.” The Chinese product lines that have been hit range from aircraft tyres to turbines and commercial dishwashers.

Moreover, the US wants China to stop practices that allegedly encourage transfer of intellectual property, design and product ideas, to Chinese companies, such as requirements that foreign firms share ownership with local partners to access the Chinese market. The US announced plans for tariffs this spring, after an investigation into China’s intellectual property practices.

Concerns in the US

Many economists and businesses in the US say the tariffs are likely to hurt some of the sectors the administration is trying to protect, which depend on China for parts or assembly. Economists estimate that the tariffs will hurt GDP by less than half of a percentage point. But the measures could also lead to higher prices and job losses in some industries. The International Monetary Fund (IMF) warned that the dispute could hurt business and consumer confidence. A trade war would lead to losses on both sides and could cause impact than expected.

Farmers are worried about harm. The Motor and Equipment Manufacturers Association, which represents car parts makers, called the tariffs “taxes that hurt U.S. companies, put jobs at risk, and negatively impact consumers.” Boat-makers, which are also facing higher costs due to US tariffs on steel and aluminium, will now be hit with tariffs on almost 300 parts, said the National Marine Manufacturers Association.

Response of China

Through China’s press, the conflict of interests between the US and China is publicly known and names as “Trade Friction”. In response, China announced tariffs on $34bn of US goods including agricultural products, cars and marine products which will also take effect from 6 July, saying it will impose an additional 25% tariff on 659 US goods worth $50bn. Tariffs on other US goods will be announced at a later date, the Xinhua news agency reported. “If the US takes unilateral and protectionist measures that harm Chinese interests, we will respond immediately by taking the necessary decisions to safeguard our legitimate rights and interests,” Chinese foreign ministry spokesman Geng Shuang said earlier on Friday. All trade talks between China and the US would be void if Washington imposed trade sanctions, he added. Consequentially, Stock markets could dropped in Europe and the US after the announcements because investors might get concerned about a possible trade war.

The Game Theory

China is aware of the impact globally and prepared for the emergency solutions and sustainable long-term planning. However, China is not threatened by this Trade Friction. On contrary, there exists opportunities as well, taking Japan as an example. Post trade friction between Japan and the US, Japan had achieved upgrading the domestic industry and efficient return of overseas investments. First of all, it prepares China for the future challenges in global trade, and management of crisis in protectionism and trade frictions. Simultaneously, such scenario accelerates the development of domestic research and innovation sectors, as well as the transition of processing trade and strategically broaden the view of the world market.

General Directions

Chairman Xi Jinping addressed in Boao Forum for Asia in 2018 that China is determined to support the policies of opening up to the global market followed by four articles:

  • To ease the entrance standard of China’s market: followed by the opening up on service oriented industries; additionally, financial, telecom, education, medication and automobile sectors are followed and supported.
  • To establish investor-friendly inbound environment: an investor-friendly inbound environment includes taxation policies, human resources, potential of the business, market competition orders, regulations of trade, policies towards foreign investors, etc. Instead of using state aid and subsidies as less forceful instruments, to ensure healthy market competition rules, internationalisation of regulations and policies have become the tools for a transparent and stable market.
  • To enhance the protection of intellectual properties: R&D sector is driving the boat of the current international competitions. High standard protection of intellectual properties needs to be integrated.
  • To increase importation proactively: the correct approach to solve trade surplus and / or trade deficit is to increase in quality and quantity of the exportation of one’s own goods, but not taking protectionism policies as a singular “solution”.

It is too early to make final conclusions of where this trade friction goes and the impacts it potentially causes, but it is never too late to be prepared strategically and sustainably on both domestic and global level.

For further information and comment, please contact Arthur Flieger (flieger@fliegerlaw.com, +32 3 238 77 66)

© 2018 A. Flieger – This publication is defined to provide accurate and authoritative information in regard to the subject matter covered. It is transmitted with the understanding that the publisher is not engaged in rendering legal, or any other professional services. If legal advice or other expert assistance is required, professional services should be sought. You can always contact A. Flieger at flieger@fliegerlaw.com.