Chinese Tariff Ping Pong

Market Intel / August 8, 2018

Credit: CC0 Public Domain 

Have you ever watched a really good ping pong game on YouTube? The volleys stretch on for minutes at a time; the players so intense. With two new tariff announcements each from the U.S. and Chinese governments just this week, the table tennis imagery springs immediately to mind. Three of the four Chinese tariff announcements have included agricultural products, which makes me wonder, in this real-life game is U.S. agriculture the ping pong ball?

Continuing the table tennis analogy, there have now been three games in the tariff match that need to be discussed with regards to retaliatory Chinese tariffs on U.S. agricultural products. The first game of the match revolves around the U.S. 232 investigation tariffs of 25 percent on steel and 10 percent on aluminum. The Chinese responded with retaliatory tariffs of 15 and 25 percent on agricultural and non-agricultural products, which went into effect on July 1.

The second game of the tariff match revolves around the U.S. 301 tariffs of 25 percent on $50 billion of Chinese imports, which were put into place in response to Chinese intellectual property theft. This $50 billion in tariffs was carried out in two parts – tariffs on $34 billion went into effect on July 6, tariffs on the remaining $16 billion will go into effect later. China responded with an additional 25 percent tariff on select agricultural and non-agricultural products, which also went into effect on July 6.

The third game of the tariff match, was a re-match of game two. By that we mean that on July 17, the U.S. announced that it is also proposing a further increase in the amount of Chinese imports subject to tariffs – adding an additional $200 billion. When the announcement was made, the proposed tariff level was 10 percent. However, on August 1 the U.S. proposed increasing the 10 percent tariff to 25 percent. China responded on August 3 by releasing a long list of products, agricultural and non-agricultural, that will be subject to additional supplemental tariffs of 5 to 25 percent. These supplemental retaliatory tariffs are in addition to the 25 percent retaliatory tariff that was originally announced. The supplemental 301 tariffs and China’s retaliatory tariffs could go into effect in the fall.

The Office of the U.S. Trade Representative served up game four today, August 8, when it released a list of $16 billion of electronics, machinery, railway cars and chemicals from China that will be subject to a 25 percent import tariff.  This completes the $50 billion worth of Chinese imports containing industrially significant technologies, including those related to China’s “Made in China 2025” industrial policy, which USTR’s 301-investigation report found necessary. The tariffs will go into effect on August 23. In response, China has released a list of U.S. products for a 25 percent retaliatory tariff, including cars, crude oil, natural gas and coal, which will also go into effect on August 23. Thankfully, this round excluded finished agricultural products, though U.S. farmers could be hurt by tariffs on chemical inputs.

Several U.S. agricultural products have been served up in more than one game. For example, bone-in fresh hams were on both the 232 and original 301 retaliation list. This U.S. product now faces a tariff of over 70 percent when imported into China – 20 percent MFN (most favored nation) tariff + 25 percent 232 tariff + 25 percent 301 tariff. (It should be noted that a VAT (value added tax) also applies, which adds another 10-16 percent, depending on the product, but that tax applies to imports from all sources and is not widely considered part of the tariff war.) Other products, like frozen strawberries, which were on the 232 list, escaped the original 301 list, but have been included in the 301 supplemental list. If the U.S. goes forward with tariffs on an additional $200 billion of Chinese goods via the 301 supplemental, the combined tariff on U.S. frozen strawberries will be 65 percent – 30 percent MFN tariff + 15 percent 232 tariff + 20 percent 301 supplemental tariff.

It takes a long time to track down which products are on which lists, the original MFN tariff for each product and finally to calculate the final tariff, so we’ve done that here. The attached PDF sources data from five reports put out by USDA-Foreign Agricultural Service’s Global Agriculture Information Network—which has done a wonderful job covering this unfolding exchange--China’s latest 301 list and the WTO Tariff Analysis online facility. The links for all the reports are included at the bottom of the PDF file.

A professional ping pong match includes five games, though more games are possible at the judge’s discretion. Game five is guaranteed and will come this fall when the U.S. decides if it wants to proceed with tariffs on the additional $200 billion in Chinese imports and at what level – 10 or 25 percent. How many games will ours have?

Contact:
Veronica Nigh
Economist
(202) 406-3622
veronican@fb.org
 

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