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China Retaliates with Higher Tariffs on $60 Billion US Imports

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Updated

The US ramps up tariffs

Most of the markets’ fears came true when the United States increased tariffs on $200 billion worth of Chinese imports from 10% to 25% on May 10. The US administration is also considering a 25% tariff on another $325 billion worth of Chinese imports. This will cover mostly all the imports from China to the United States.

The markets were still hopeful that as the trade talks continue, both sides could come up with a solution. The tariffs did, however, take a toll on the markets last week. The S&P 500 Index (SPY), the Dow Jones Industrial Average Index (DIA), and the NASDAQ Composite Index (QQQ) fell 2.0%, 1.9%, and 3.2%, respectively.

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Point of contention

The main point of contention has been reported to be China going back on some of its promises. At a rally in Florida on May 8, President Donald Trump said that China (FXI) “broke the deal” in the ongoing trade talks. While until two weeks ago, the markets were quite hopeful that a trade deal would be struck between the two sides, all that changed with Trump’s tweets on May 4, in which he talked about ramping up the tariffs on Chinese imports worth $200 billion and potentially bringing most of the rest of Chinese imports under tariffs as well.

China retaliates

China made clear that it would retaliate in kind if the tariffs go up on its exports to the United States. It wasn’t clear, however, how the Chinese side would retaliate. It seems the mystery is over. China has said it will hike tariffs on $60 billion worth of US imports to 25% starting on June 1. Trump has been warning China not to retaliate, saying such a move would make things even worse for China.

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