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The US-China Trade War: A Tit for Tat Tariff Escalation (14/12/2018)
Union of Arab Banks - Research Department

The U.S. – China Trade War
In 2018, U.S. President Donald Trump began imposing tariffs on China, igniting a trade war between the two superpowers which has markets, policymakers, and investors on the edge. Trade and economic tensions between the United States and China have escalated rapidly over a short period of time, posing a grave threat to the multilateral trading system and the principle of free trade. Any further increase in tensions will weigh on financial markets already rattled by the potential impact of the trade war on economic growth.
The tariff saga began in March 2018, when President Donald Trump imposed tariffs on aluminum and steel imports from all countries including China. So far, the U.S. has imposed tariffs on $250 billion in Chinese imports. Trump has also threatened to impose tariffs on the remaining $267 billion worth of Chinese products imported last year. China, in retaliation, has imposed tariffs on $110 billion worth of U.S. goods, and is threatening measures that would affect U.S. businesses operating in China. 
The two countries’ tit-for-tat tariff escalation has dragged on for months, as Trump tries to fulfil his “America First” promise and create more U.S. manufacturing jobs. In addition, the Trump administration imposed tariffs on Chinese imports to supposedly address two main issues. First and foremost is the massive trade deficit that the United States runs with China, which reached a record-high of $375 billion in 2017, as total U.S. imports from China reached $506 billion. Trump also wanted to guarantee stronger protections on U.S. intellectual property. 

Background – Trade Statistics
According to a white paper published by China in September 2018 titled “The Facts and China’s Position on China-US Trade Friction”, trade in goods between China and the U.S. amounted to $583.7 billion in 2017, a 233-fold increase from 1979 when the two countries forged diplomatic ties, as well as a seven-fold increase from 2001 when China joined the World Trade Organization. Currently, the U.S. is China’s biggest export market and 6th biggest source of imports. In 2017, the U.S. took 19% of China’s exports and provided 8% of China’s imports. China is an import market for U.S. goods such as airplanes, agricultural products, automobiles, and integrated circuits. China also represents the number one export market for U.S. airplanes and soybeans, and the number two export market for U.S. automobiles, IC products and cotton. 

Development of the U.S. – China Trade War
Below is a timeline of the trade war between the world’s two largest economies in reverse chronological order, compiled from Bloomberg and the China Briefing. 
December 1, 2018. On the sidelines of the G20 summit in Argentina, U.S. President Donald Trump and Chinese President Xi Jinping agreed to keep their trade war from escalating with a promise to freeze the imposition of new tariffs for 90 days as the world’s two largest economies negotiate an agreement. The U.S. tariffs on Chinese goods will remain unchanged for 90 days, but if at the end of this period of time, the parties are unable to reach an agreement, the 10% tariffs on $200 billion of imports will be raised to 25%. In exchange, immediate negotiations began on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture. Moreover, China agreed to buy a large amount of agricultural, industrial and energy products to reduce the trade imbalance between the two countries. President Xi also agreed to designate Fentanyl as a Controlled Substance. Nevertheless, it should be noted this this is not a suspension of the trade war but merely a suspension of the escalation of the trade war.
November 20, 2018: The World Trade Organization (WTO) agrees to launch an investigation into China’s intellectual property policy and U.S. metal tariffs.
November 19, 2018: The U.S. releases list of proposed export controls on emerging technologies that could be used for military purposes such as artificial intelligence (AI), robotics, and quantum computing, in an effort to prevent China from acquiring sensitive technologies.
October 18, 2018: China, the EU and others asked the WTO to investigate U.S. tariffs on metal imports. 
September 24, 2018: The US implements tariffs on $200 billion worth of Chinese goods, bringing the total amount to $250 billion. China responds to US tariffs by implementing tariffs on $60 billion worth of U.S. goods
September 18, 2018: China announced retaliation on $60 billion of U.S. goods to become effective simultaneously with the U.S. tariffs on September 24. 
September 17, 2018: The U.S. announced a 10% tariff on $200 billion of Chinese exports effective September 24 until the end of 2018, to rise to 25% afterwards. 
August 23, 2018: The U.S. implements a 25% tariffs on $16 billion of Chinese imports. China implements retaliatory 25% tariffs on $16 billion of U.S. goods. 
July 6, 2018: 25% tariffs on $34 billion of imports began in both the U.S. and China. 
May 28, 2018: At the WTO, the U.S. accused China of imposing laws that result in the theft of U.S. tech and IP.
March 27, 2018: The U.S. released Section 301 Report into China's Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation. 
March 9, 2018: Trump signed tariffs on imported steel and aluminum from all nations, including China.

 

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