First the good news: as we reported moments ago, the “trade war – heavy” scenario envisioned by Deutsche Bank comes with 45% tariffs on all imports from China which would cause significant damage to China’s economy, and would prompt China to respond with drastic measures. This scenario could also “move the US economy into recession.” But according to a just released fact sheet from the US Trade Representative, this is not the baseline US proposal, at least not yet, and instead the US will impose “only” 25% duties on Chinese products.
Now the bad news: the same fact sheet notes that the industries targeted by the US will be: aerospace, information and communication technology and machinery, all high-tech (one can argue with technology stolen from the US), high-margin, mission-critical industries to China where the US is a critical customer. In fact, the strategic importance of maintaining legacy trade status for these sectors prompted Goldman Sachs one seek ago to not even include them in the list of most likely industries targeted by the US.
As such, it is likely that the starting salvo in trade wars will anger Beijing far more than if some of the more generic export sectors had been targeted. It also means that the severity of the proportional response will be high enough to potentially prompt the next step in the White House counter-retaliation in what is now an escalating tit-for-tat trade war as taught in all PoliSci 101 classes.
Readers can access the full USTR fact sheet below (or at this link), but here is the breakdown of the key Section 301 actions just enacted by the Trump administration, in its own words, including the size of the proposed tariffs and targeted industries:
SECTION 301 RESPONSES
- In a Memorandum signed on March 22, 2018, the President has directed his Administration to take a range of actions responding to China’s acts, policies, and practices involving the unfair and harmful acquisition of U.S. technology.
- WTO Case: At the direction of the President, USTR will confront China’s discriminatory technology licensing practices through a World Trade Organization (WTO) dispute.
- 25 Percent Ad Valorem Duties: USTR will propose additional tariffs on certain products of China, with an annual trade value commensurate with the harm caused to the U.S. economy resulting from China’s unfair policies. The proposed product list subject to the tariffs will include aerospace, information and communication technology, and machinery.
- Investment Restrictions: The President also has directed his Administration to respond to Chinese investment aimed at obtaining key U.S. technologies. Relevant departments and agencies will work with the Treasury Department to propose measures addressing China’s investment practices involving the acquisition of sensitive technologies.
And the full term sheet.