U.S.-China trade war escalates as latest tariffs kick in

The United States and China the world's two largest economies are escalating their trade war by implementing 25 per cent tariffs on $16 billion US worth of each other's goods, even as mid-level officials from both sides resumed talks in Washington.

The world's two largest economies have now slappedtit-for-tat tariffs on a combined $100 billion inproducts since early July, with more in the pipeline, adding to risks to globaleconomic growth.

China's Commerce Ministry said Washington was "remainingobstinate" by implementing the latest tariffs, which kicked inon both sides as scheduled at 12:01 p.m. in Beijing.

We have many more bullets than they do. They know it. We have a much stronger economy than they have. They know that too.- Wilbur Ross,U.S. commerce secretary

"China resolutely opposes this, and will continue to takenecessary countermeasures," it said in a brief statement.

Hours later, Chinese officials said Beijing had filed a complaint tothe World Trade Organization (WTO) regardingthe latest U.S. tariffs.

U.S. President Donald Trump has threatened to put duties on almost all of the more than $500 billion inChinese goods exported to the United States annually unless Beijing agrees to sweeping changes to its intellectual property practices, industrial subsidy programs and tariff structures, and buys more U.S. goods.

That figure would be far more than China imports from theUnited States, raising concerns that Beijing could consider other forms of retaliation, such as making life more difficultfor American firms in China or allowing its yuan currency to weaken further to support its exporters.

'We have more bullets'

Trump administration officials have been divided over howhard to press Beijing, but the White House appears to believe itis winning the trade war as China's economy slows and its stockmarkets tumble.

"They're not going to give that up easily. Naturally they'llretaliate a little bit," U.S. Commerce Secretary Wilbur Ross said on CNBC on Wednesday at a Century Aluminum smelterin Hawesville, Ky., which is restarting idled production lines due to Trump's aluminum tariffs.

"But at the end of the day, we have many more bullets thanthey do. They know it. We have a much stronger economy than theyhave. They know that too," Ross said.

Economists reckon that every $100 billion inimports hit bytariffs would reduce global trade by around 0.5 per cent.

They have assumed a direct impact on China's economic growthin 2018 of 0.1 to 0.3 percentage points, and somewhat less for theUnited States, but the impact will be bigger next year, alongwith collateral damage for other countries and companies tiedinto China's global supply chains.

Hard line rattles Beijing

The tariffs took effect amid two days of talks in Washingtonbetween mid-level officials from both sides, the first formal negotiations since U.S. Commerce Secretary met with Chineseeconomic adviser Liu He in Beijing in June.

Business groups expressed hope that the meeting would markthe start of serious negotiations over Chinese trade and economic policy changes demanded by Trump.

However, Trump on Monday told Reuters in an interview thathe did not "anticipate much" from the talks led by U.S. TreasuryUnder Secretary David Malpass and Chinese Commerce Vice MinisterWang Shouwen.

Trump's hard line has rattled Beijing and spurred rarecriticism within the highest levels of China's ruling Communist Party over its handling of the trade dispute, sources have said.

Beijing has denied U.S. allegations that it systematicallyforces the unfair transfer of U.S. technology and has said thatit adheres to WTO rules.

Foreign Ministry spokespersonLu Kang would not reveal anydetails of the talks during a daily news briefing.

"We hope that the U.S. side can meet China halfway, and witha rational, pragmatic attitude, conscientiously with China get agood result," Lu said.

Don't be greedy

The official Xinhua news agency said in a commentary onThursday that China approached the latest round of talks in goodfaith, but that Washington remains vague about what it wants.

"As U.S. President Donald Trump said in his book on making deals, 'the point is that you can't be too greedy.' The two sides would hence be advisable to define their top concerns in this round of talks and outline a roadmap, in a bid to find a way out of the current impasse and toward the final settlement of the issues."

Washington's latest tariffs apply to 279 product categoriesincluding semiconductors, plastics, chemicals and railway equipment that the Office of the U.S. Trade Representative hassaid benefit from Beijing's "Made in China 2025" industrial planto make China competitive in high-tech industries.

China's list of 333 U.S. product categories hit with dutiesincludes coal, copper scrap, fuel, steel products, buses and medical equipment.

Though it is too early for trade damage to show up in mucheconomic data as yet, tariffs are beginning to increase costs for consumers and businesses on both sides of the Pacific,forcing companies to adjust their supply chains and pricing, with some U.S. firms looking to decrease their reliance onChina.

One executive at a major U.S. manufacturer in China toldReuters the uncertainty about the duration of the trade conflict was more damaging than the tariffs themselves because it madebusiness planning difficult.

If the tariffs are in place for a long while, there willcome a point at which the company would begin moving some sourcing and production out of China, a process that would beirreversible for several years once set in motion, the executivesaid, declining to be identified due to the sensitivity of thematter.