Tuesday marks the date the current 90-day hold on implementing increased tariffs on China, originally set by the U.S., is scheduled to expire. There is currently no clear indication whether it would be prolonged. Officials from both the U.S. and China, following the latest trade discussions that took place at the tail end of last month, suggested a continuation of the tariff moratorium for a further 90-day span.
The U.S. administration noted, however, that the final decision rests with President Donald Trump. In the absence of any formal declaration confirming his intention to support a further deferment or proceed with the imposition of enhanced tariffs, the atmosphere of uncertainty has left many businesses in a state of flux. If the decision is made to increase the import duties, this could send shockwaves through the global markets.
Throughout this period, President Trump has frequently adjusted the deadlines and tariff percentages, leaving Tuesday’s likely course of action uncertain. If the grace period for reaching a trade agreement with China were extended, this might help to avoid the earlier threats of tariffs rising by as much as 245%.
Increased tariffs are viewed as a countermeasure to the significant, persistent trade deficit between the U.S. and China. This deficit experienced a 21-year low in July, impacted by the looming threat of increased tariffs on Chinese exports.
While the U.S. is accustomed to making public statements about the progression of negotiations, a stark contrast is found in China’s more reserved approach, often choosing to withhold comments until key decisions are firmly established. In the run-up to the upcoming Tuesday deadline, Beijing has been typically silent.
JD Vance, the U.S. Vice President, disclosed in a recent interview that the possibility of an additional tariff imposition on Beijing is under consideration by Trump due to China’s choice to buy Russian oil. Despite this, he stated that no concrete decisions had yet been made.
Should the U.S. choose to impose exorbitantly high tariffs on Chinese exports, Beijing would face substantial pressure. This comes at a time when the Chinese economy, globally second only in size to the United States, is gradually beginning to heal from a downturn in the property market.
The global pandemic has resulted in a spike in demand for gig jobs, as a great many people are left with no other choice of employment. This has had a stifling effect on the job market. Further damages have been endured by smaller factories due to high import duties on parcels from China, leading to an acceleration in job cuts. The U.S., however, is highly dependent on China for imports ranging from daily goods, apparel, wind turbine components, rudimentary computer chips, batteries for electric vehicles and the consequential rare earth elements required for production.
These significant dependencies render Beijing a potent influence in their negotiations with Washington. China’s competitive edge in regards to various goods still stands, even in the face of increased tariffs. The Chinese government is aware that the U.S. economy is just starting to grapple with the elevated costs resulting from tariff hikes.
Currently, a 10% standard tariff is levied on imports from China, in addition to an extra 20% tariff which is tied to the ongoing fentanyl issue. Certain goods, however, are charged at an inflated rate. U.S. exports to China face tariffs close to the 30% mark.
Prior to the ceasefire agreement reached between the two parties, Trump had vocalized threats of implementing a whopping 245% import duty on Chinese commodities. China swiftly replied they would retaliate with an increase in their tariffs on U.S. goods by up to 125%.
Trade disputes between the two giants of the global economy will invariably have repercussions worldwide, influencing industrial supply chains, fluctuating demand for commodities such as copper and oil, as well as playing a tangible role in matters of global politics, like the war in Ukraine.
President Trump, after a telephone conversation with Chinese Premier Xi Jinping, stated his desire for a meeting with Xi later in the year. This aim serves to incentivize a resolution in their trade agreement.
Any failure to maintain the truce could result in a resurgence of trade disputes and a further increase in tariffs, which would lead to heightened economic distress for both nations and send shockwaves through the global economy. In such an unfavourable environment, businesses would hesitate to commit to investment and hiring, fuelling an inflationary surge.
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