World Economy
by Alex Davies on May 10, 2019

US increases tariffs on Chinese imports to 25%

A few days ago we reported about the President of the United States foreshadowing a hike in the tariffs on Chinese goods, sending markets into panic. The new tariffs hiked to 25% took effect on Friday and will affect $200 billion worth of imports from China. The hike will be disruptive to the negotiations that many expected to end almost a year-long trade war between the world’s two largest economies. Reports were circulating about the possible removal of a part of the tariffs, but that seems highly unlikely given the recent development in the events. On the contrary, China’s Commerce Ministry has said it would retaliate with countermeasures in the near future.

As disruptive as the hike might be to the trade negotiations, they will still continue, according to the Commerce Ministry. Chinese Vice Premier Liu He met with US Trade Representative Robert Lightizer and US Treasury Secretary Steven Mnuchin on Thursday for over an hour. Although the scale of the meeting was reduced drastically after President Trump’s tweets, there will be another meeting on Friday. A representative from the Commerce Ministry said that they still hope “the United States can meet China halfway, make joint efforts, and resolve the issue through cooperation and consultation”.

The tariffs will be increased from 10% to 25%

The increased tariffs took effect on Friday and all goods that are affected by it shipped after 12:01 am EDT will have a 20% duty, as opposed to the original 10%. There are more than 5,700 categories of products that are affected by these tariffs and their total value is estimated at $200 billion. There were three rounds of tariffs before this one, and all of them had a notice period of at least three weeks. “This creates an unofficial window, potentially lasting a couple of weeks, in which negotiations can continue and generates a ‘soft’ deadline to reach a deal. Given this detail, downside to sentiment might be slightly more muted than if the tariff increase came with a ‘hard’ deadline. This also leaves an opportunity for the two sides to reach an agreement in the next couple of weeks, though challenges remain,” –  commented Goldman Sachs in a note.

US increases tariffs on Chinese imports

New tariffs will affect American shoppers as well

With the rising cost of imports, retailers won’t have a choice but to raise the prices of the products affected by the new tariffs. About $20 billion of the $200 billion worth of such products are internet modems, data transmission devices, and routers. Also, a big share of the products comes on printed circuit boards that are used by many US companies in the manufacturing process. Other affected products are furniture, vacuum cleaners, building materials, lighting products, and auto parts. “Our industry supports more than 18 million U.S. jobs – but raising tariffs will be disastrous. The tariffs already in place have cost the American technology sector about $1 billion more a month since October. That can be life or death for small businesses and startups that can’t absorb the added costs,” – said Gary Shapiro, the chief executive of the Consumer Technology Association.

 

By Alex Davies

Alex Davies is a long-time trader with a background in statistical analysis. Davies has worked as a financial analyst since 2014 and has been writing technical analyses for various publications since 2015. Davies writes on different financial instruments including stocks, cryptocurrencies and currency pairs.

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