cmdtyInsights Weekly Commodity Market Report
CRB - Commodity Research Bureau - CRB - Thu Aug 09, 10:08PM CDT

US/Chinese trade war expands by $16 billion with the big $200 billion hammer possible in September

The U.S. on Tuesday announced that the 25% tariff on $16 billion of Chinese products will go into effect on August 23. That prompted the Chinese government to announce an equivalent 25% tariff on $16 billion of U.S. goods, also effective on Aug 23. As of Aug 23, the U.S. and China will have a penalty 25% tariff on a total of $50 billion worth of each other’s goods.

The next round of tariffs could come as soon as September 6 after the public comment period ends for the Trump administration’s proposal for a 25% tariff on another $200 billion of Chinese products. The Chinese government has already announced that it would retaliate for that move with tariffs ranging from 5% to 25% on another $60 billion worth of U.S. products.

If the September round goes into effect, then the U.S. would have a penalty tariff on $250 billion worth of Chinese goods, accounting for nearly half of U.S imports from China over the last 12 months totaling $525 billion. Meanwhile, China would have a penalty tariff on a total of $110 billion of U.S. products, representing about 80% of Chinese imports from the U.S. over the last 12 months totaling $135 billion.

China’s Aug 23 tariff on $16 billion of U.S. products includes 333 product categories such as coal, various petroleum and fuel products, scrap metals, recyclables, cars, buses, and many other items. China dropped crude oil off the final list. The list contains very few agricultural products since they were already hit hard by the 25% tariff that went into effect on July 6 on $34 billion worth of U.S. products.

Meanwhile, China’s $60 billion retaliation list for September contains most of the rest of U.S. exports to China except for crude oil and large aircraft. The $60 billion list includes a 25% Chinese tariff on U.S. LNG exports to China. That would be damaging to the U.S. since the U.S. exported 15% of its LNG to China in 2017 and China is expected to become the world’s largest LNG importer this year.

The U.S. and China now have only about a month for talks before the Trump administration could drop the big hammer with the 25% tariff on $200 billion worth of Chinese products. That could cause a hit to the Chinese GDP of 0.3-0.4 percentage points and cause additional Chinese financial market turmoil, with possible contagion to the global markets. The Chinese yuan has already plunged by -6% in the past two months and the Chinese stock market has corrected lower by a total of -25% from Jan’s 2-1/2 year high.

There is hope for a tariff cease-fire before September, perhaps in line with the model of the recent US/EU cease-fire. However, neither the U.S. nor China seem particularly interested in serious talks as both sides see the trade dispute more generally as a struggle for future global economic domination.