China raised its tariff on U.S. imports to 125% on Friday in retaliation for President Donald Trump’s latest tariff increase, while making plans to dispose of its excess goods by flooding the rest of the world with cheap exports.
Trump issued an executive order on Thursday raising China’s punitive tariff rate to 125 percent, added to the 20 percent tariffs he applied in February and March over Beijing’s failure to address the fentanyl crisis, for a total effective rate of 145 percent.
The president also ordered a 90-day pause on duties for most other countries while trade negotiations are underway, provided those countries did not retaliate against his first round of tariff increases. China was conspicuously absent from the 90-day pause order.
China responded on Friday by raising tariffs on U.S. imports from 84 percent to 125 percent.
“The U.S. side’s imposition of excessively high tariffs on China seriously violates international economic and trade rules, runs counter to basic economic principles and common sense, and is simply an act of unilateral bullying and coercion,” the Chinese Finance Ministry complained.
The finance ministry said this would be the last of China’s retaliatory tariff increases, even if Trump continues to raise the rates on Chinese imports.
“Even if the U.S. continues to impose higher tariffs, it will no longer make economic sense and will become a joke in the history of world economy,” the ministry asserted. “If the U.S. continues to play a numbers game with tariffs, China will not respond.”
China does have another response in mind besides raising its own tariff rates: dumping a mountain of cheap products on the rest of the world to empty its warehouses of the goods America is not buying.
China’s state-run Global Times on Thursday claimed Chinese export customers are confident they can weather the trade-war storm by finding other customers.
“If one market is not favorable, we can always turn to others. E-commerce exports are not limited to the U.S. market,” Zhengzheng Electronic Commerce Co. president Yao Zhengzheng told the Global Times.
“As a cross-border e-commerce company, we certainly have some worries and concerns. But we are confident the quality and cost-effectiveness of Chinese products still have advantages in the international market,” Yao said.
Conan Tools general manager Wang Xiaonan said his company is looking for new buyers in Africa to replace lost American business.
“The discussions are progressing well. Previously, the company neither had African clients nor had entered the market, and it also never had customers from South American countries,” he said.
The notion that these alternative markets could make up for lost American business is risible. U.S. imports from China exceeded $462 billion last year. The entire African continent’s imports from China add up to $262 billion at best, and even that level is sustained only through enormous trade deficits that have become increasingly controversial among African populations.
The rest of the world is already nervous about China selling off the overcapacity from weak domestic demand and wrecking local markets with a flood of low-quality goods sold at fire sale prices. Other countries will likely consider raising their own tariff and regulatory barriers if China tries to bury them under $400 billion in merchandise that can no longer be sold in America.
A spokesman for the Chinese Ministry of Commerce assured the Global Times that the Communist government stands ready to “support foreign trade firms facing export difficulties” by boosting domestic consumption with various subsidies.
This, again, is fanciful — China’s export economy will not provide the money needed for sustained stimulus under tariff pressure and, even in its golden age of plumbing the U.S. market for billions in export income, Beijing was extremely reluctant to commit to heavy domestic stimulus spending. When belated stimulus plans were finally put into effect last year, market analysts found the outcome disappointing.
China announced another round of stimulus spending in March to soften the blow from President Trump’s first round of tariffs, which only added up to 20 percent. It is doubtful that Beijing’s pockets are deep enough to finance much more stimulus spending, and Chinese consumers have not responded with great enthusiasm to the previous rounds.
The Global Times finished off with a much more plausible hope that Trump’s tariffs will hike consumer prices in the United States enough to cause him serious political problems, citing a recent Budget Lab at Yale estimate that the average U.S. household could lose up to $3,800 of purchasing power.
