Trade war finally begins as China set to slap 25% reciprocal tax on US products; markets tumble

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Updated: April 4, 2018 2:10:24 PM

The trade war has finally begun as China has slapped a 25% reciprocal tax on 106 products of the United States days after Donald Trump began imposing additional tariffs.

China imposes additional tariff on 106 US productsTrade war begins as China slaps a reciprocal tax on US products. (Image: Reuters)

The trade war has finally begun as China is set to slap a 25% reciprocal tax on 106 products of the United States days after Donald Trump began imposing additional tariffs. China will impose additional tariffs of 25% on 106 US products including soybeans, autos and chemicals, Reuters reported citing a state broadcaster.

The effective date for the new tariff will be announced soon. The reciprocal tax by China was long feared after the Trump administration began imposition additional tariffs on Chinese products including solar panels, steel and aluminium. Donald Trump’s decision to consider a ‘big fine’ over an alleged theft of intellectual property by China added fuel to the fire.

The Trump administration this week will unveil a list of advanced technology Chinese imports for a targeted tariff, a move which is expected to intensify trade war further. Tariffs on $50 billion to $60 billion worth of annual imports are expected to be levied on products benefiting from ‘Made in China 2025’ industrial development program.

While Donald Trump’s actions are in line with his poll promises of protecting America’s domestic companies from cheap foreign products under ‘Buy American, Hire American’ policy, experts believe that the trade war, if escalated, could boomerang on the US.

A research study estimated that a full-blown war with China and Mexico will only bring recession in the US economy. The paper written before Donald Trump’s win by PIIE economists Pedro Nicolaci da Costa and Eitan Urkowitz said that if China and Mexico retaliate US’ trade war, it will lead to severe, direct job losses in trade-related industries. This will then lead to indirect job losses in industries that produce intermediate goods for the affected industries lowering US incomes, consumption, and investment, plunging the economy into a recession.

On the news of China’s retaliation to the US tariff policies, not just US’ market but Indian market tumbled too after it triggered sell-offs. Sensex dropping as much as 471 points from the day’s top and Nifty broke the crucial level of 10,150 as sell-off resumed after the two-day uptick in the equities.

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