At midnight on Friday, the United States officially imposed $34 billion worth of tariffs on Chinese goods, effectively setting off a trade war that experts say has no end in sight.
China immediately responded with 25 percent tariffs on $34 billion worth of U.S. goods. Its Ministry of Commerce said Friday that the U.S. has launched “the largest trade war in economic history to date.”
Customs in both countries are already collecting duties on the new tariffs.
For the U.S., Friday’s $34 billion in tariffs are the first batch in the promised $50 billion it intends to hit China with. The list of 818 now tariffed Chinese goods includes machinery used for making pulp for cellulosic material; machines for extruding, drawing, texturing and carding man-made textile materials; molds for footwear machinery and injection molding machines to make rubber or plastic shoes.
The remaining $16 billion worth of tariffs could come in the next two weeks, and China is prepared to go blow for blow with the U.S., responding with matching measures to whatever the U.S. puts forth.
“The Chinese side promised not to fight the first shot, but in order to defend the core interests of the country and the interests of the people, they had to be forced to make the necessary counterattacks,” a spokesperson for China’s Ministry of Commerce said in a translated statement.
Those counterattacks come in the form of tariffs on U.S. exports of soybeans, corn, wheat, pork, dairy and cars.
“This kind of taxation is a typical trade bullyingism, which is seriously jeopardizing the global industrial chain and value chain security, hindering the pace of global economic recovery, triggering global market, and will affect more innocent multinational corporations, general enterprises and ordinary countries,” the Commerce Ministry spokesperson continued.
With neither side seeming to back down, the tariffs could continue to escalate. President Trump has already alluded to tariffs with China reaching as high as $500 billion “if we don’t make a deal” he said in a Fox News interview Sunday.
What’s happening at the border now
American brands and retailers bringing goods in from China are already paying the new tariffs at the border.
The United States Trade Representative created a new tariff provision that will flag any goods classified on the China imports target list and include the new 25 percent duties. These new tariffs are being added to shipments with entry dates of July 6 or later, so goods that may have arrived earlier in the week but hadn’t yet been processed, will also face the new tariffs.
“Duties will be paid at the same time as the ordinary customs duties, so at the time of filing the entry,” John M. Foote, an associate at Baker & McKenzie, said Friday.
U.S. companies are scrambling to navigate the new waters, and many are focused on one critical next move.
“I think the greatest level of interest presently is in the exclusion process,” Foote said.
Though there’s been no official notice yet including details of the product exclusion process, it’s expected that companies will be able to seek exclusions from the new tariffs for products that are only available from China, would cause severe economic harm to a U.S. interest, or are not strategically important to the “Made in China 2025” program.
The concern there however, is that as with the exclusionary process for the Section 232 tariffs (the national security based authority Trump used to employ steel tariffs), exclusion requests were filed in the tens of thousands, and fewer than 1 percent have reportedly been processed.
“The idea is that you want to file your exclusion request as soon as possible, but it’s going to need to be a thorough request,” Foote said, adding that companies should begin preparing responses to questions like: how long would it take to secure/establish another source of supply outside of China? Has the production of the article in China benefitted from China’s industrial policies, like Made in China 2025? Has your company been forced to disclose any technology to the Chinese government to secure a permit or other authorization?
Customs officials in China have also begun collecting duties on the U.S. tariff lines targeted in the retaliation, and reports say the country has also been employing non-tariff retaliations, like urging Chinese citizens not to travel to the U.S., slowing down licensing approvals for doing business and ramping up customs checks at the ports.
What’s expected to happen at retail
Tensions—and tariffs—may be highest between the U.S. and China, but the trade war has already reached global proportions, with the European Union, Canada and Mexico each instituting their own retaliatory tariffs for Trump’s tariffs on steel and aluminum.
The European Union has put tariffs as high as 25 percent on $3.3 billion worth of U.S. exports, including T-shirts, jeans and leather shoes. Canada has put tariffs as high as 25 percent on $12.6 billion worth of U.S. exports, including tablecloths and bedding. And Mexico has put tariffs as high as 25 percent on $3 billion worth of U.S. exports, including steel and farm products, though nothing has yet been aimed at the apparel and footwear industries.
“There is no longer a ‘threat’ of a global trade war—the battle has begun,” Hun Quach, VP of international trade for the Retail Industry Leaders Association (RILA), said in a statement Friday. “Americans are caught in the crosshairs of the Administration’s three-front trade war, and they will be the ones paying the price. The recent onslaught of tariffs will jeopardize manufacturing and agriculture jobs in the U.S., while driving up prices on household items.”