China retaliation hits US after as tariff tit-for-tat escalates

China has retaliated against White House trade tariffs by imposing its own levies on 106 US products on Wednesday, including on soyabeans, cars, planes and whisky.

Overnight, the US government published a list on Tuesday of new 25% tariffs on approximately 1,300 Chinese imports, including $50bn worth of Chinese high-tech goods.

Beijing's tariffs were calculated to similarly target $50bn of US products, while China’s commerce ministry said it had begun a dispute procedure against the US with the World Trade Organisation.

Zhang Xiangchen, Chinese envoy to the WTO, said on Wednesday that the measures are “an intentional and gross violation of the WTO’s fundamental principles of non-discrimination and bound tariffs”.

The Chinese embassy in Washington DC said it strongly condemned and opposed the list. “The Chinese side will resort to the WTO dispute settlement mechanism and take corresponding measures of equal scale and strength against U.S. products in accordance with Chinese law,” a statement read.

With the US exporting close to $14bn of soybeans to China in 2017, corn and soybean futures dropped in Chicago on Wednesday.

US 10-year Treasury yields edged lower, with investors looking to longer term bonds as a safe haven play.

The Chinese tariffs are "a sign that Beijing is up to the fight", said market analyst Craig Erlam at Oanda.

"Ultimately, the response we’re seeing in the markets suggest investors are not on board with the actions being taken by both countries and see them as a real threat to what has been a good period of global growth."

He added that the compression of yields is likely to trigger more concerns about whether a flattening of the yield curve is a reflection of increasing recession worries. "I don’t think this is the case currently, with low inflation and safe haven demand, among other things suppressing longer term yields."

We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S. Now we have a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion. We cannot let this continue!

— Donald J. Trump (@realDonaldTrump) April 4, 2018

The Trump administration’s planned $50bn of tariffs, if implemented, would have a marginal impact on the US economy, calculated Oxford Economics.

"But while the near-term impact on the global economy of recent moves by both sides may be quite small, the risks of escalation are clear, with the seeds of more serious trade conflict apparent," the economists said.

"Possible warnings signs of a trade 'skirmish' escalating into trade war would be were US tariffs being extended to Chinese industries such as consumer electronics and negative developments in the negotiations on the North American Free Trade Agreement (NAFTA) and in the US-EU trade relationship."

With Trump's current trade policy aiming to leverage concessions from trading partners, Oxford Economics said this could risk encouraging more strong-arm actions, both by the US itself and by other large economies and trading blocs, which in turn could act to break down the rules-based world trade system.

"Threats to the US-China trade relationship are the most dangerous for global growth. An escalation of US tariffs into major import products like telecoms/ electronics would have large negative spillover effects for other Asian economies."