China, U.S.: What to Make of Washington's Watered-Down Tariffs

5 MINS READAug 13, 2019 | 20:47 GMT
The Big Picture

In its 2019 Third Quarter Forecast, Stratfor noted that the United States would likely follow through on its threat to impose additional tariffs on remaining Chinese imports. The White House has now exempted some of these tariffs, likely in an attempt to appease global markets and mitigate the impact on the U.S. economy. Despite this latest reprieve, U.S.-China trade talks will likely remain rocky, and each new tiff brings new problems for the two sides to hash out.

What Happened

The Office of the United States Trade Representative (UTSR) on Aug. 13 unveiled its plans for implementing the additional tariffs on Chinese goods that U.S. President Donald Trump announced Aug. 1. Washington has initially planned to place an additional 10 percent tariff on a list of Chinese goods worth roughly $300 billion in annual imports starting in September. But following a phone call between Chinese and U.S. trade negotiators, the White House is now planning to split the list of goods facing new tariffs into two tranches. 

The first tranche of tariffs will still go into effect on Sept. 1. This list includes mainly food products, industrial goods and other nonconsumer electronics — covering about $145 billion in imports. The second tranche of tariffs, meanwhile, will now go into effect Dec. 14. This list includes consumer electronics, toys, and certain textiles and clothing articles — accounting for roughly $176 billion in imports.

Why It Matters

The rollback of some U.S. tariffs likely resulted from constraints on Washington rather than China simply offering up more concessions. Circumstances surrounding Trump's initial announcement made clear that most of his economic and trade advisers — including lead negotiator Robert Lighthizer — opposed increasing tariffs for fear of the economic impact. 

In the immediate aftermath of Trump's Aug. 1 announcement, global markets plunged while China allowed the yuan to weaken. This prompted the U.S. Treasury Department to label China a currency manipulator — sparking concerns about the health of the global economy and consequently, the U.S. economy. Adding to the anxiety, Bank of America recently estimated that there is now one chance in three that the United States could enter a recession in the next 12 months due, in large part, to global trade tensions.

Such an economic downturn would undoubtedly jeopardize Trump's 2020 re-election bid. Within this context, the White House's recent decision could be perceived as a strategic walk back to quell financial markets' fears. And indeed, despite the fact that Washington is still upping some tariffs on China, markets have so far responded positively to the news. 

If past U.S.-China trade talks indicate anything, it's that reprieves between the two adversaries are often short lived. 

The delay in the second tranche of tariffs represents a significant reprieve for Chinese consumer good manufacturers, as the new tariffs are now slated to go into effect well after their holiday season shipments reach U.S. shores. But the decision to follow through on the tariff hike on Chinese industrial goods in September risks taking an even bigger toll on the U.S. manufacturing sector, which has already been hit hard by the two countries' ongoing trade war. The sector entered a technical recession in the second quarter of 2019, after months caught between China's rising import tariffs and Washington's retaliatory export tariffs.

What to Watch for 

The United States and China will likely continue to hold talks between now and when the first tranche of tariffs goes into effect on Sept. 1. But how much longer the countries will continue to engage in negotiations is becoming increasingly uncertain, as new points of contention continue to arise. 

In May, the United States issued a temporary general license to suppliers and partners of the Chinese tech giant Huawei, which expires on Aug. 19. But Washington has since reportedly delayed any decision on whether to move forward with issuing an extension or new licenses after Beijing stopped buying U.S. agriculture goods in response to Trump's Aug. 1 announcement. But China has remained staunch in its position that it will only agree to buy more U.S. agricultural goods if the United States extends export licenses or reduces export controls on Huawei in return — placing the two sides at another impasse.

The USTR announcement could be evidence that the United States wants to keep trade negotiations with China from complete collapse. The rollback of tariffs seems to indicate that Trump's Aug. 1 announcement was mostly an impulsive reaction to China's failure to quickly buy more U.S. farm goods. Also doubtless pleasing to Beijing, the Trump administration has notably downplayed the escalating political crisis in Hong Kong, and remained largely reticent over the controversial and increasingly likely prospect that Beijing might intervene in the unfolding situation.

With this in mind, there's a chance the United States may decide to grant another reprieve to China to delay the breakdown of talks. But if past trade negotiations indicate anything, it's that reprieves between the two rivals are often short-lived. 

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