U.S.-China Trade War Continues With Second Round of Tariffs

The U.S. has fired the latest salvo in its trade war with China, vowing to impose a 25% tariff on another $16 billion worth of Chinese goods starting August 23. U.S. Trade Representative Robert Lighthizer announced on Tuesday that the nearly 300 items targeted are industrial goods such as tractors, plastic tubes and measuring equipment, Business Insider reported. China has responded by vowing to impose an equal tariff of 25% on $16 billion worth of U.S. goods, which include vehicles, fuels, plastic products and recyclables.

The U.S. is turning up the heat as Congress has passed a defense bill designed to restrict Beijing’s economic and military activity, The Wall Street Journal reported. The legislation aims to tighten U.S. national-security reviews of Chinese deals under the Committee on Foreign Investment and revamp export controls governing which U.S. technologies can be sent abroad. Additionally, President Donald Trump has threatened to levy a 25% tariff on an additional $200 billion worth of Chinese imports.

“The increase in the possible rate of the additional duty is intended to provide the administration with additional options to encourage China to change its harmful policies and behavior and adopt policies that will lead to fairer markets and prosperity for all of our citizens,” Lighthizer said in a statement.

The second round of tariffs comes as no surprise as tensions between the two countries remained high during the recent G-20 summit in Buenos Aires, Argentina. U.S. Treasury Secretary Steven Mnuchin said the U.S. is ready to start talks on trade agreements with China, the EU and the Japanese, but those trading partners must first remove tariffs, non-tariff trade barriers and subsidies. In response, French Finance Minister Bruno Le Maire said the EU wouldn’t hold any talks while the U.S. tariffs are in effect because “we refuse to negotiate with a gun to the head.”

The first round of tariffs went into effect in July, when the U.S. officially levied 25% taxes on $34 billion worth of Chinese goods. Beijing quickly retaliated with tariffs on $34 billion worth of imported U.S. goods. President Trump has pushed for these tariffs as part of an intellectual property investigation of Chinese high technology companies.

The International Monetary Fund (IMF) estimates the conflict between the U.S. and China would cost the world around 0.5% in gross domestic product, based on current measures and “in the worst case scenario.” The U.S. would be harder hit than other countries because a larger share of its exports will be subject to the punitive levies, according to the IMF’s calculations.

A prolonged trade war between the U.S. and China could prove challenging for the promotional products market, as prices on Chinese-made imported goods would increase. Industry firms – as well as retailers – would then have to decide whether to take a hit in their margins or pass the added cost on to buyers.

“We’re doing scenario planning,” Jonathan Isaacson, president of Top 40 supplier Gemline (asi/56070), told SGR in the upcoming Supplier State of the Industry. “If you aren’t planning your business, assuming something like this could happen, it could end up being very unpleasant.”

All suppliers are probably having similar conversations, says Paul Lage, president of Top 40 supplier IMAGEN Brands, parent company of Crown Products (asi/47700) and Vitronic (asi/93990). “Tariffs don’t have a significant effect right now – it’s really more about the unknown,” Lage said. “Our industry is subject to what happens in the geopolitical area. We’re starting discussions to answer ‘what ifs’ and to try and figure out what we should do.”

In 2017, a total of $506 billion in goods were imported from China, meaning the tariffs represent over 10% of the total annual value of Chinese imports, noted Joshua White, BAMKO’s (asi/131431) general counsel and senior vice president of strategic partnerships, in a white paper. White and BAMKO Vice President of Operations Max Levavi discussed the tariff proposals and how they’ll impact the promotional products industry in an exclusive podcast with Counselor in March.