Trumps tariffs are harder than China expected

When China’s top leaders held their annual summer trip on August 3, US President Donald Trump raised a great deal about his deliberations.

Just two days earlier, Trump’s administrative officials said they are considering taxing Chinese exports worth $ 200 billion at 25 percent – compared with a previously announced 10 percent tax. The world’s two largest economies had formally launched trade fears in July, when they imposed a $ 34 billion penalty fee from each other’s exports.

Chinese officials hoped that their unwanted trade dispute with the United States would stay there, at least for the summer. “Everybody has been surprised by Trump,” said a Chinese economist who is close to Beijing policy makers. “Most Chinese officials assumed that Trump was just trying to push the border, but would eventually go back.”

Mr Trump has pushed forward his attempt to beat the heat of Chinese President Xi Jinping. Next week, the United States will introduce already announced tariffs of another $ 1

6 billion in Chinese exports, which will be matched by Beijing.

In view of this unmatched economic and geopolitical challenge, Xis administration has been trying to stabilize China’s household economy, currency and equity markets, while appealing to people’s patriotism.

In its last meeting on 31 July, the Chinese Communist Party’s Politburo – consisting of the top 25 officials – called for “stable employment, stable economy, stable foreign trade, stable foreign investment, stable investment and stable expectations”. [19659002] The day later at Beidaihe, a seaside resort near the Chinese capital, police member Chen Xi urged a group of country’s leading researchers to “keep a patriotic heart” and help China to “independently control nuclear technology.”

During the two months before the Politburo’s call for economic stability, the yuan had fallen more than 6 percent against the dollar to a low of 6.85 – a big move for the carefully controlled currency. Since the Politburo’s statement, the yuan has acted sideways.

The country’s stock markets, which Trump gladly noted on August 4, had fallen more than 20 percent this year, have won land in the week.

The Central Bank of China weighed interbank lending to its lowest levels since the stock exchanges crashed three years ago. It also reimposed rules that make it more expensive to bet against the yuan.

Chinese officials need to balance their resolve to reduce financial risks and ensure that economic growth does not slow to tremble against Trump’s attacks. “The authorities have not given up [reducing] risks, but they also want to support the real economy,” said Andrew Polk at Trivium, a Beijing consultant. “The two may not be compatible.”

Keeping the currency less than Rmb7 to the dollar, which a prominent central bank advisor in the week called an important “mental barrier” could prove expensive.

“In an environment where growth continues to slow down and China-US relations are not improving, seven will only raise a lot of other issues,” says a foreign exchange strategist. “You would need to burn reserves, tighten capital controls and tight monetary conditions that contradict your current monetary policy. “

In its quest for stability on all fronts, the Chinese government has to calibrate its response to Mr Trump’s escalating tariff threat.” Beijing is emphasizing “retaliation as intensity and scale” because it is difficult to implement without unacceptable pain for the Chinese economy, “said Yanmei Xie, a Chinese analyst at GiftKal Dragonomics.

When Trump’s second round fee comes into force on August 23, only 10 percent of China’s exports to the United States – or 2 , 2 percent of its total exports – have been affected. As the official Chinese newspaper said in a cow mmentar of the week is “the trade conflicts of the two countries are just pushing and pushing the moment”.

However, if the Trump administration is following its latest threat to another $ 200 billion Chinese exports, the total value of affected goods will lead to $ 250 billion, about half of China’s exports to its largest trading partner – and 11 per cent of it Total exports – taxed at 25 percent. Last year, China exported goods worth $ 505 billion to the United States.

In contrast, China, which imported US goods worth $ 130 billion last year, has already taxed – or threatened with taxes – US exports worth $ 110 billion.

In his reply to Mr Trump’s latest 25 percent tariff threat, China’s Ministry of Trade said that it would respond with tariffs between five and 25 percent. Products that are difficult to source from countries other than the United States will be taxed at lower prices. Chinese officials have currently exempted US oil exports from retaliation.

Having hoped in vain for the best, they now also make themselves the worst. “Some people are proud to see a lion awake or a dragon takes off, feeling uncomfortable with a population of more than 1.3 billion living a better life,” says the Communist Party’s flagship, People’s Daily, in a comment on Thursday. “We will stand firm.”

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