Published: Fri, June 22, 2018
Business | By Tara Barton

China Trade: From 'Grand Bargain' towards trade war?

China Trade: From 'Grand Bargain' towards trade war?

Trade frictions between the United States and Canada have been particularly strained in recent weeks, with Trump taking umbrage at remarks by Canadian Prime Minister Justin Trudeau that were critical of the heavy US tariffs.

International Monetary Fund Managing Director Christine Lagarde has warned world leaders to "steer clear of protectionism in all its forms", following weeks of tension between the USA and China over trade. "This would likely violate WTO rules, but I suspect China will care about violating WTO rules as much as Trump does".

Peter Navarro, a top trade adviser to U.S. President Donald Trump, said he's unaware of any tariff exemption for Apple Inc.'s iPhone in the growing trade spat with China. Oxford Economics estimates that if Trump imposed the $200 billion in tariffs and China responded in kind, usa growth could slow by 0.3 percentage point next year. China is retaliating by raising import duties on $34 billion worth of American goods, including soybeans, electric cars and whiskey.

The Trump tariffs, which the U.S. government says are punishment for intellectual property theft, will be enacted in two waves. "President Trump has given China every chance to change its aggressive behavior".

In other words, the economic conflict between China and the U.S. can potentially go beyond tariffs and directly disrupt the global economy. The largest United States industrial companies that have extensive market penetration in Chinese markets are struggling amid the potential trade war.

This causes costs to increase for businesses that use those goods as parts for their final product.

"These tariffs will go into effect if China refuses to change its practices, and also if it insists on going forward with the new tariffs that it has recently announced", Trump said in a statement.

Investor concerns surrounding the implications of confrontation between China and the US returned just as the Federal Reserve this month signaled a faster pace of policy tightening and the European Central Bank said it will maintain it key rate until the second half of next year. At the same time, farmers in China are being encouraged to plant more soy, apparently to help make up for any shortfall from the U.S.

The president said the tariffs were in reaction to China's decision to place similar import taxes on $50 billion in US goods.

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So it's no surprise that the massive tariffs President Donald Trump has threatened and China's response could lead to a trade war that would cripple the iPhone company, and Apple CEO Tim Cook has been working behind the scenes with both governments to make sure it stays out of the crossfire.

Flags of US and China are placed for a meeting in Beijing on June 30, 2017.

Tariff hikes imposed so far by Trump affect a total of $109-billion of imports, according to Morgan Stanley.

"I have to point out that U.S. remarks confused right with wrong and made irresponsible accusations against China to cover up its unilateral and protectionist moves", Chinese Foreign Ministry spokesman Geng Shuang told a media briefing here today when asked for his reaction to Pompeo's comments.

Meanwhile, the yuan weakened to a low of 6.4754 in afternoon trade, the weakest since January 12, while China's benchmark 10-year treasury futures jumped, as bond yields fall.

Big industrial companies and chemical makers are hard hit.

Tariffs drive up the cost of goods coming into the U.S., forcing businesses to pay more for imported goods or buy more expensive domestically produced goods. "It's not easy but we're getting there", the president said.

The White House hasn't set a date for the imposition of any new tariffs beyond the initial list.

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