What is a tariff? Mattingly breaks it down

Hong Kong (CNN) — President Donald Trump has finally made good on a campaign promise to raise tariffs on Chinese imports – announcing on Saturday duties of 10% on all Chinese goods coming in the country as part of sweeping trade measures that also targeted Mexico and Canada.

Now the question for Chinese leaders is how strongly to retaliate.

In the wake of the announcement, Chinese officials – who were hit by Trump’s move while in the middle of a week-long public holiday – vowed to file a complaint with the World Trade Organization and “take corresponding countermeasures” without specifying in what form.

The imposition of a 10% tariff on Chinese goods imported into the United States “seriously violates the WTO rules,” China’s Ministry of Commerce said in a statement Sunday, adding that China will “resolutely defend its rights.”

That response, at least so far, has been noticeably less concrete than the ones from Mexico and Canada, which were both quick to pledge swift retaliatory tariffs. The latest announcement raises a 10% tariff on Chinese products, rather than the 25% on all goods from Mexico and most from Canada – all are expected to go into effect Tuesday. Unlike for China, where the latest tariffs top existing ones on a swath of goods, Canada and Mexico previously enjoyed nearly a duty-free relationship with the US.

But there are other reasons besides the number next to the percentage sign and China’s public holiday that could account for the comparatively mild response from the world’s second largest economy.

Beijing has enjoyed an unexpectedly warm start to Trump’s second term – a welcome development for Chinese leaders as they seek to avoid escalating trade and tech frictions at the same time as the export-reliant country’s economy slows.

Chinese leader Xi Jinping and Trump had what the US leader called a “very good” phone call days before Trump took office, and his inaugural ceremony was attended by the highest-level Chinese official to ever be dispatched to such an event.

The US president has also sent other signals he’s in dealmaking mode with Beijing – saying repeatedly he hopes to work with Xi on resolving Russia’s war in Ukraine and suggesting in a recent interview with Fox News that he thought Washington and Beijiing could reach a trade deal.

While the president campaigned on winning economic competition with China and stacked his administration with a bevy of China hawks, the recent tone may suggest to Beijing that it’s better not to escalate too extensively, at least not yet.

Still time for a deal?

The 10% tariffs are a far cry from the upwards of 60% tariffs that Trump suggested he could levy on Chinese goods while on the campaign trail. Trump has – at least in his rhetoric – largely linked these duties to the role of Chinese suppliers in the fentanyl trade, not the gaping trade imbalance between the US and China.

Instead, the expectation within China has been that Trump may be biding his time until he receives the results of a larger probe into US-China economic and trade relations that he commissioned in an executive order signed on his first day in office.

“Trump may rely on the upcoming results of trade investigations to impose or expand tariffs on specific countries, testing their tolerance and willingness to negotiate,” an analysis published Sunday on the website of Shanghai-based think tank Fudan Development Institute said.

“The risk of escalating into a ‘full-blown trade war’ cannot be ruled out. Before any actual actions are taken, Trump can still use ambiguous strategies to pressure opponents and wait for substantive concessions from them,” it continued.

The Trump-ordered review, due April 1, is expected to guide whether the White House imposes further duties on China. In the meantime, Beijing has time to build a relationship with Trump, entertain him in the Chinese capital or push for a preemptive deal to avert more severe economic penalties.

The message from China’s top political echelon has been conciliatory. Chinese Vice-Premier Ding Xuexiang last month told elites gathered in Davos that Beijing wants to “promote balanced trade” with the world, while Xi called for a “new starting point” in US-China ties.

Beijing’s decision to complain to the WTO about the new tariffs underscores a key message from Chinese Communist Party propagandists: that China plays by global rules, while the US is the one who does not. Beijing has also defended its efforts to control exports of precursor chemicals for fentanyl and said the drug crisis is “America’s problem.”

It remains to be seen whether China will announce more trade countermeasures in the days ahead. But its initial response to the 10% duty and messaging in recent weeks suggests that it may still be in a wait-and-see mode before digging too deeply into its toolbox of retaliatory measures.

An opinion piece published by state broadcaster CCTV Sunday decried the “erroneous” tariffs while also calling for more cooperation between the two countries.

Weighing up retaliation

Pundits within the country have downplayed the impact of the 10% tariffs – amid a larger debate about whether it would serve China to escalate a trade war like during the first administration.

In 2018, Trump heightened or imposed tariffs on hundreds of billions of Chinese imports to the US, with Beijing hitting back with what analysts say were some $185 billion of its own tariffs on US goods.

The Biden administration largely kept those duties in place, while focusing on its own so-called “small yard, high fence” approach to trade with China – placing targeted export controls on Chinese access to high tech that could have military applications.

That saw Beijing unleash its own controls – limiting the export of certain critical minerals and related technologies that countries rely on to fabricate products from military goods to semiconductors. Late last year, the country revamped its export control regulations, sharpening its ability to restrict so-called dual-use goods.

A ramping up of the use of these controls, as well as retaliatory tariffs, could be moves for Beijing in the weeks ahead or if Trump does levy higher tariffs in the coming months.

Meanwhile, Beijing has already taken steps to insulate itself from some of the impacts of the tariffs, which Trump himself has admitted could bring “pain” for Americans – an admission that follows concerns from economists and members of Congress that Americans will bear the cost of the measures.

The US imported $401 billion worth of goods from China, with a trade deficit of over $270 billion in the first 11 months of last year, according to US government data. That placed China behind only Mexico as a top source for goods imported to the US.

Chinese state media on Sunday said the country’s exports to the US account for only 3% of their GDP and less than 15% of China’s total exports.

“China has long been preparing less exposure to the US, diversifying in all ways, not just in terms of trading partners, investment, but also currencies and payment system,” Keyu Jin, associate professor of economics at the London School of Economics told CNN’s Fareed Zarakia during the World Economic Forum in Davos last month.

“The tariffs will hurt both countries. But you’ve seen already a gradual kind of redirection of trade to other countries (from Chinese companies),” Jin said.

China sees “Trump as somebody who they can negotiate with, that there’s room for negotiation,” she added.

The-CNN-Wire
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