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22 Apr 2022

Econ Digest

The U.S.-China trade war suspended to reduce impact of the Russian-Ukrainian war

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        On March 23, 2022, the United States announced an extension of the tariff-free period until the end of 2022 for 352 of the 549 Chinese imports for which a re-exemption had been requested. Most of the goods involved are essential goods used in the manufacturing production chain and goods that cannot be imported from other countries such as machinery, manufacturing production components, consumer goods, TV screen parts, backpacks, bicycles and pillows.

        The continued escalation of the Russia-Ukraine conflict has led not only to an acceleration of global, including the U.S., energy prices and production factor prices, but also to sensitivities about being an ally of either party, and in some cases China will be affected by the sanctions that follow a stated position. However, China has remained neutral in the Russian-Ukrainian war and expressed its opposition to the war, as well as not participating in the Western countries’ economic sanctions policy against Russia. Therefore, the U.S. tariff exemption on 352 items imported from China reflects that while the United States maintains its trade war policy with China, it is not the right time to intensify the trade war with China.

        The first phase of the U.S.-China trade agreement reached on January 15, 2020 was the starting point for the two countries to jointly find a way out. That is, the United States has set conditions for China that must be implemented within two years, such as requiring China to revise intellectual property laws, China’s protection for U.S. companies on technology transfer, requirements on exchange rate issues and the opening of China’s financial services sector, and requiring China to import an additional USD 200 billion of U.S. goods and services. However, from January 1, 2020, to December 31, 2021, China’s import of goods and services from the United States amounted to only USD286 billion, accounting for 57% of the targeted USD502 billion in total import value (based on a base value of USD302 billion in 2017 plus an additional USD 200 billion)
        It has been four years since the U.S.-China trade war began in 2018, and the United States continues to impose tariffs on Chinese goods worth more than USD360 billion (2017 value) 7.5% and 25%, while about USD160 billion of consumer goods (see List 4B goods in the chart above) have yet to be taxed. However, during the COVID-19 pandemic, the United States removed 549 industrial and consumer staples and necessities to combat the COVID-19 pandemic from the taxed list, changing from being taxed at 7.5% and 25% to being exempted. In addition to 325 products this time (March 25, 2022), the goods in the List 4B goods also continue to be exempted from tariffs.
        This extension of the tariff exemption period coincides with the U.S. economy facing its highest level of inflation in nearly 40 years at 7.9% (February 2022); such a move may help ease inflationary pressures on consumers during the Fed’s rate hike cycle. At the same time, from another perspective, the imposition of tariffs on Chinese imports by the U.S. has also done little to significantly reduce the U.S. trade deficit with China. The U.S. trade deficit with China in 2021 was USD355.3 billion, up by 14.5% YoY (from USD418.2 billion at the start of the trade war in 2018).
However, as the current Russian-Ukrainian war continues to stir the world, the U.S. should not provoke the US-China trade war at this time. At the same time, both China and the U.S. must speed up efforts to address the looming economic problems of accelerating inflation and contain the severe spread of the mutated strain of the COVID-19 virus. If the above crises improve, China and the U.S. may continue with the next phase of negotiations. It is believed that under Joe Biden’s leadership, the U.S. will continue to exclude China from participating in key technology areas and crack down on China by further increasing pressure from international trade regulations such as banning the transmission of technology products to Chinese companies, removing Chinese companies from the stock market, using high labor standards to put pressure on Chinese companies, etc., and the issue of tariffs will depend on the extent to which China implements the conditions imposed by the U.S.

        The U.S.-China trade war may re-emerge as a hot topic during the U.S. mid-term elections in late 2022, because the Democratic Party is facing a severe challenge of losing its seats in the House of Representatives, coupled with the current inability of President Biden to gain popular approval for his solution to economic problems. In a Reuters poll on March 29, 2022, support for President Biden’s policies fell to 42% from 55%, when he took the presidency (January 21, 2022).

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