US-China trade war escalates as new tariffs take effect

The US and China have moved ahead with their latest round of bilateral tariffs, placing new levies on over $200bn/yr of import goods including US crude oil.

US tariffs of 15pc on around $133bn/yr of imports from China took effect yesterday. China immediately responded with tariffs of 5-10pc on $75bn/yr of US imports, including a 5pc levy on crude .

Tariffs imposed by the US under Section 301 trade actions now cover around 68pc of all imports from China by value, according to an Argus analysis of US Trade Representative data using 2018 imports as a baseline. This will rise to 96pc on 15 December, when the next set of tariffs on a further $165bn/yr of Chinese imports is due to take effect. Only a few sensitive products, such as rare earths, have been excluded from the tariff list.

China's retaliatory tariffs are even more comprehensive, covering the huge majority of its $130bn/yr imports from the US. Existing tariffs have already curtailed most energy and commodity trade between the countries, including China's nascent imports from the emerging US LNG export sector.

The inclusion of crude in China's tariffs for the first time is likely to end a recent recovery in its imports of the product from the US, which hit a 13-month high of 350,000 b/d in July. The tariff uncertainty has in any case sent US crude arrivals in China down by almost two thirds in the first seven months of this year, Chinese customs data show.

Tariff targets China's average tariffs on US imports are now sharply higher than those from other sources, according to US think-tank the Peterson Institute for International Economics. Oil imports from the US face an average 25.2pc tariff, compared with just 3.6pc from other countries. Tariffs on US chemicals, plastics and rubber imports are at 21.5pc, while soybeans are taxed at 33pc — compared with just 6.5pc and 3pc for all other sources, respectively, it said.

The US has an average tariff rate of 21.2pc in place on Chinese imports, which is on track to rise to 24.3pc in December. Tariffs averaged just 3.1pc before the trade war started to escalate last year.

US and Chinese officials said they are maintaining contact, despite the tariff hikes. Economic and trade teams are discussing whether a Chinese delegation will visit the US in September for further talks, China's commerce ministry said on 29 August. "I guess the meeting in September continues to be on," US President Donald Trump said a day later. China's slowing economy and the approach of the US presidential elections next year could put pressure on Trump and his Chinese counterpart Xi Jinping to reach some kind of deal.

But other issues may complicate any rapprochement. Washington has hardened its rhetoric over Beijing's aggressive enforcement of its territorial claims in the disputed South China Sea and accused it of blocking the exploitation of trillions of dollars of oil and gas reserves.

The US government is also watching continuing protests in Hong Kong, which the Chinese government has accused Washington of helping to foment. Trump claimed late last week that the pressure he has put on China's leaders over trade has helped prevent even worse violence. But any military crackdown on the protests could cause a major breach in relations. China knows "it puts us in a very bad position if there is not a humane way of handling the problems" in Hong Kong, Trump said.

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