China hits back against latest US tariffs, but signals openness to talks

BEIJING – China has pushed back against the latest US tariffs with a flurry of measures, but its response remains well-calibrated, say analysts, further signalling its intent to leave the door open to talks.

New duties of 10 per cent and 15 per cent will be imposed on US agricultural products from cotton to soya beans to chicken from March 10, China’s ministries of finance and commerce announced on March 4.

Fifteen US firms, including those in defence technology, were added to China’s export control list, and will need special approval to receive shipments of “dual-use” items that have both civilian and military applications.

Ten other US firms were added to an “unreliable entity list”, banning them from trading with China or making any new investments in the country.

On top of these measures, China said later on March 4 that it was suspending soya bean imports from three US companies as well as log imports from the US, citing beetles in shipments.

The Chinese authorities also announced the start of a probe into US fibre-optic products – the first of its kind in China – after receiving complaints that American firms were circumventing anti-dumping measures.

China’s latest moves come swiftly after US President Donald Trump confirmed that a fresh round of 10 per cent duties will be slapped on Chinese goods, effective from March 4, adding to an initial 10 per cent tariff hike that kicked in from February.

Analysts told The Straits Times that China’s latest response was as measured as its earlier reaction, underlining how it remained open to negotiations with the US.

Ms Erica Tay, Maybank’s director of macro research, said China’s latest countermeasures seem designed to “inflict minimal pain on the domestic (Chinese) economy by choosing products where there are abundant substitutes”.

“While US exporters of produce including corn, soya beans, chicken and pork rely substantially on Chinese demand, China has diversified its import sources for these staples over the years, to Brazil, Argentina, Canada and Australia,” she said.

“China’s retaliation has been targeted and restrained,” she said, like its earlier response to US tariffs.

Dr Zhang Zhiwei, president of Pinpoint Asset Management in Hong Kong, said the latest retaliation measures by China “are louder than (the) last round, as more goods are covered”.

“But we need to keep in mind that the US imposed tariffs on all China’s exports, while China only retaliated on a small share of US exports to China,” he said.

This shows that China is trying not to escalate the trade war, he added.

In another sign that China remains open to talks, Mr Lou Qinjian, spokesman for the National People’s Congress, the country’s top legislature, said on March 4 that China and the US can hopefully “meet each other halfway and find a solution through consultation”, even as he criticised the US for its latest tariffs.

Mr Lou was replying to a question at a press conference before the opening of the annual parliamentary sessions – known as lianghui or the “Two Sessions” – that started this week.

Analysts say the latest US tariffs spell trouble for China’s economy.

Mr Stephen Olson, a former US trade negotiator, expects the latest tariff hike “to be far more problematic” for Chinese firms than the initial round.

“For many Chinese industries, their entire business model depends on high-quality (goods) at extremely low prices, and profit margins are notoriously thin,” said Mr Olson, a visiting senior fellow at the ISEAS – Yusof Ishak Institute in Singapore.

Chinese firms, particularly those with thin profit margins that sell mainly to the US, might be pushed into the red, he added.

Professor Hu Guangzhou of the China Europe International Business School in Shanghai expects China to double its efforts to boost domestic consumption to make up for an expected decline in exports.

“Exports have been a bright spot of the Chinese economy, but the new tariffs will dampen demand for Chinese-made products,” he said.

Mr Jens Eskelund, president of the European Chamber of Commerce in China, said European companies have been diversifying their supply chains away from China since Mr Trump’s first term as president, when he had begun targeting China.

The Covid-19 pandemic and the war in Ukraine further sped up the trend, he said, adding that the new round of US tariffs will likely lead to more supply chain and operational adjustments by European firms in China.

In announcing the latest tariffs, Mr Trump accused China, along with Mexico and Canada, of not having done enough to address his concerns about illegal immigration and drug trafficking.

Previously, China had hit back against the earlier US tariffs by slapping a 15 per cent duty on American coal and liquefied natural gas, and 10 per cent tax hikes on crude oil, farm machinery, pickup trucks and other goods, among other things.

But these measures were not expected to deal too heavy a blow to the US economy.

Meanwhile, as US-China trade tensions worsen, Chinese businesses expect hard times ahead.

Over at a freight forwarding company in Shenzhen, which sends goods from China to the US, an employee told ST that its customer base has tilted towards bigger firms after the 10 per cent tariff hike that the US imposed in February.

“The smaller companies cannot absorb the higher costs as well as their bigger competitors, and have been eliminated,” said the employee, who gave his name only as Mr Xie as he is not cleared to speak with the press.

He expects the trend to worsen with the latest 10 per cent hike.

Mr Huang Liqing, 33, who runs an e-shop on online marketplace Amazon selling stickers and wallpaper to buyers in the US and Canada, said he intends to pass on the higher costs from the latest tariff hike to US customers.

“If sales drop as a result, then I might focus on growing my customers in Canada or even expand to South-east Asia or Europe,” he told ST.

Mr Huang, who is based in Shenzhen, expects his profit margin, which can be up to 40 per cent, to drop to as low as 10 per cent if the trade war continues.

“My priority for now is to make sure that I don’t have all my eggs in one basket, and to diversify quickly enough to make sure I won’t be too badly hit due to the fallout of the trade war,” he said.