US-China trade war escalates with tariffs and counter-tariffs on each other; auto sector to get an impact along with others

In the midst of two days of talks between top US and Chinese negotiators to resolve a 10-month trade war between the world's two largest economies, US President increased tariff on US$200 billion worth of Chinese goods by 25 per cent effective Friday, May 10.  

The US Customs and Border Protection imposed the new 25 per cent duty on affected US-bound cargoes leaving China after 12:01 a.m. EDT (0401 GMT) on Friday. Trump gave US importers less than five days’ notice on the tariff hike.  This new rate now matches the rate on a prior US$50 billion category of Chinese machinery and technology goods.

The rate hike affected US$20 billion-plus category of internet modems, routers and other data transmission devices, followed by about US$12 billion worth of printed circuit boards used in a vast array of US-made products. Auto parts and lighting products are other categories to be subjected to higher duties.  Auto parts ranked 10th on the list of products facing the higher tariffs with a value of US$2.3 billion.

Following this, China announced on Monday it would impose higher tariffs on a revised US$60 billion target list of goods imported from the US. The finance ministry in Beijing announced that a total of 5,140 U.S. products will be subject to additional tariffs of 5 per cent, 10 per cent, 20 per cent and 25 per cent effective June 1.

The additional tariff of 25 per cent will be levied against 2,493 goods including LNG, soy oil, peanut oil, petrochemicals, frozen vegetables and cosmetics, the ministry said, and of 20 per cent on 1,078 products.

"China's adjustment on additional tariffs is a response to U.S. unilateralism and protectionism," the ministry said. "China hopes the U.S. will get back to the right track of bilateral trade and economic consultations and meet with China halfway."

The trade war escalated on Friday after Trump hiked tariffs on $200 billion worth of Chinese goods, including many auto parts, saying China had reneged on earlier commitments made during months of trade negotiations.

In April, China extended suspension of additional tariffs on U.S. light vehicles and auto parts as a goodwill gesture following a U.S. decision to delay tariff hikes on Chinese imports. However, Friday’s tariff increase escalated the Tariff war as many auto parts were also subjected to extra tariffs which China regularly exports to the US.

Trump urged China leaders, including President Xi Jinping, to continue to work to reach a deal. "China should not retaliate-will only get worse," he said on Twitter.

Trump last week also ordered U.S. Trade Representative Robert Lighthizer to begin imposing tariffs on all remaining imports from China, a move that would affect an additional $300 billion worth of goods.

Analysts say this re-escalation of the trade war between these two countries would have significant repercussions for the U.S., Chinese and global economies.