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US Tariffs Blog Series (2) – A Recap of the U.S.-China Trade Conflict Timeline

By Jing LiJeffrey A. Rinde, Megan J. PenickNing Zhang and Joy Xiao

On March 22, 2018, CKR Law LLP (“CKR” or “we”) published our first article of an ongoing series of blog posts on proposed tariffs to be imposed by the United States (the “U.S.”), and their potential impact on the People’s Republic of China (“China”) and the rest of the world. In this second article, we aim to recap the sequential events detailing the tensions between the U.S. and China to assist our readers in understanding how both countries got to where they are, and to analyze the actions to date taken by both countries.

Trade Tensions Escalate

Many experts believe the trade tensions between the two countries have been brewing for more than a year.

In April 2017, merely three months after Donald Trump’s inauguration as the 45th President, U.S. Secretary of Commerce Wilbur Ross initiated an investigation to determinate the effect of imported steel on national security under Section 232 of the Trade Expansion Act of 1962. This investigation was subsequently approved by President Trump.[1] It is important to note that at the time of signing, the presidential memorandum did not appear to expressly target China.

In August 2017, President Trump authorized an inquiry into China’s alleged theft of U.S. intellectual property, which was estimated to have cost the U.S. between $225 billion and $600 billion annually.[2] In response, China’s Ministry of Commerce (“MofCom”) expressed strong dissatisfaction with the U.S. approach to unilateralism and protectionism in its statement regarding the U.S.’s “Section 301 Investigation” of China.[3]

In November 2017, President Trump visited China, obtaining China’s promise to substantially lower entry barriers in various sectors, including banking, insurance, and financial sectors, and to gradually reduce vehicle tariffs.[4] China’s president Xi Jinping also stated that both sides would continue to work toward a nuclear-free Korean peninsula based upon dialogue and negotiation.[5] President Trump, through his tweets, extended gratitude to President Xi’s warm welcome,[6] and stated in a speech addressing business leaders that he did not blame China for the U.S.-China trade deficit because China acted for the benefit of its own citizens.[7]  Many believed that this visit would lead to a warmer relationship between the two countries.

Nevertheless, in January 2018, the U.S. announced a 30% tariff on imported solar panels and a 20% tariff on imported residential washing machines. While the solar panel tariff was believed to be a blow to China, the biggest losers from the washing machine tariffs were South Korea and Mexico.[8]

In February 2018, China launched an anti-dumping probe into U.S. sorghum exports, a purported $1 billion business,[9] over claims that the U.S. subsidized sorghum farmers.

In retaliation, on March 9, 2018, President Trump followed through on the recommendations proposed by the U.S. Department of Commerce, imposing a 25% tariff on imported steel and a 10% tariff on imported aluminum, citing national security reasons.[10] Canada and Mexico were initially exempt from these tariffs, and the European Union, Australia, Argentina, Brazil and South Korea were also granted temporary exemptions following negotiation.[11] In response, on March 23, 2018, China reiterated its unwillingness to engage in a trade war, but at the same time expressed its readiness to protect its legal interests.[12]

On April 2, 2018, China retaliated by announcing tariffs on a $3 billion list of products (15% tariffs on 120 products including fruits, nuts, wine and steel pipes and 25% tariffs on eight others, such as recycled aluminum and pork) in response to the U.S. trade measures against steel and aluminum.[13]

On April 3, 2018, purportedly as a result of the August 2017 investigation,[14] the Trump administration announced 25% tariffs on approximately 1,300 Chinese products in industries such as aerospace, machinery and medical, worth an aggregate of approximately $50 billion in terms of estimated trade value for 2018.[15]

On April 4, 2018, China responded to the actions of the U.S. with 25% tariffs on 106 products worth approximately $50 billion in terms of estimated trade value that China imported from the U.S. in 2017. These products included aircraft, automobiles, soybeans and chemicals.[16], [17]

On April 5, 2018, President Trump threatened another $100 billion in tariffs on Chinese goods, on top of the previous $50 billion list.[18]

Many believe this is a high-stakes game of “chicken”. The $50 billion worth of Chinese products targeted by the U.S. were items “benefit[ing] from Chinese industrial policies, including Made in China 2025,” a comprehensive blueprint aimed at transforming China into an advanced manufacturing leader, with ten targeted industries - advanced information technology, robotics, aircraft, new energy vehicles, pharmaceuticals, electric power equipment, advanced materials, agricultural machinery, shipbuilding and marine engineering and advanced rail equipment.[19], [20] China is widely believed to be utilizing this “opportunity” to put political pressure on the Trump administration through tariffs targeting those rural states who supported President Trump in his presidential election.[21]

The U.S.’s proposed tariffs on $50 billion worth of Chinese products will not take effect immediately. There will first be a two-month period for public comment and consultation, a hearing on the tariffs will be held on May 15, after which time the U.S. Trade Representative’s Office will issue a final determination. China is unlikely to finalize its tariffs on U.S. products before this final determination. 

Even in recent days, the trade tensions between the two countries continues to evolve. On April 8, President Trump tweeted “President Xi and I will always be friends, no matter what happens with our dispute on trade. China will take down its Trade Barriers because it is the right thing to do. Taxes will become Reciprocal & a deal will be made on Intellectual Property. Great future for both countries![22]” On April 10, when delivering his keynote speech at the Bo’ao Forum for Asia, President Xi reiterated China’s commitment to opening market access, lowering tariffs, and strengthening intellectual property projections of both Chinese and foreign enterprises in China,[23] for which President Trump was “very thankful.”[24]

However, in the midst of these exchanges, on April 9, China filed a complaint with the World Trade Organization against U.S. tariffs on steel and aluminum, claiming these tariffs are inconsistent with provisions of the WTO's General Agreement on Tariffs and Trade (GATT) 1994 and of the Agreement on Safeguards.[25]

CKR’s China Practice team is closely monitoring the development of this trade conflict between the U.S. and China and will publish a weekly update for our readers.

 



[1] See page 18, “The Effect of Imports of Steel on the National Security – An Investigation Conducted under Section 232 of the Trade Expansion Act of 1962, As Amended,” U.S. Department of Commerce Bureau of Industry and Security Office of Technology Evaluation, dated January 11, 2018, available at https://www.commerce.gov/sites/commerce.gov/files/the_effect_of_imports_of_steel_on_the_national_security_-_with_redactions_-_20180111.pdf.  

[2] See page 4, “Update to the IP Commission Report – the Theft of American Intellectual Property: Reassessments of the Challenge and United States Policy,” The National Bureau of Asian Research, dated February 2017, available at http://www.ipcommission.org/report/IP_Commission_Report_Update_2017.pdf.  

[4] See “China’s Entry Barrier for Financial Sector Will Be Substantially Lowered,” Beijing Business Today, dated November 10, 2017, see http://money.people.com.cn/n1/2017/1110/c218900-29637731.html.

[5] See “Xi Met with U.S. President Trump,” Ministry of Foreign Affairs of China, dated November 9, 2017, see http://www.fmprc.gov.cn/web/zyxw/t1509099.shtml.

[7] “Trump Blames US for Trade Gap with China,” CNN Politics, dated November 9, 2017, see https://www.cnn.com/2017/11/08/politics/donald-trump-xi-jinping-statement/index.html.

[8] “Trump Slaps Tariffs on Foreign Solar Panels and Washing Machines,” CNN Money, dated January 22, 2018, see http://money.cnn.com/2018/01/22/news/economy/us-tariff-washing-machines-solar-cells/index.html.

[9] “Sorghum Farmers Are the First Victims in Growing Trade Dispute between China and the U.S.,” The Washington Post, dated February 6, 2018, see https://www.washingtonpost.com/news/wonk/wp/2018/02/06/sorghum-farmers-are-the-first-victims-in-growing-trade-dispute-between-china-and-the-u-s/?utm_term=.216de5a08d1a.

[10] See above Note 1.

[11] “More Countries Exempted from Steel and Aluminum Tariffs,” New York Post, dated March 22, 2018, see https://nypost.com/2018/03/22/more-countries-exempted-from-steel-and-aluminum-tariffs/.

[14] See above Note 2.

[17] China was careful in picking its targets. For example, China’s $50 billion list of products includes aircraft up to 45 tons in weight, which excludes high-end Boeing jetliners such as the 747 and 777.  These airplane models may be seen as crucial to China’s technological development in the aerospace sector such that the import of these models outweigh any potential pressure China’s actions may impose on the U.S.

[19] See pages 6 and 10, “Made in China 2025: Global Ambitions Built on Local Protections,” U.S. Chamber of Commerce (2017), see https://www.uschamber.com/sites/default/files/final_made_in_china_2025_report_full.pdf. See also https://www.reuters.com/article/us-usa-china-trade/u-s-escalates-china-trade-showdown-with-tariffs-on-50-billion-in-imports-idUSKCN1HA2Q9.

[20] Notably, while some industrial technology products are included, consumer electronics, including cell phones, laptops, personal computers, servers and telecommunications equipment, appear to be largely excluded. “They did target Made in China 2025, but with a caveat. They weren’t going to unduly harm the consumer,” reported Reuters. Some suspect that this is a result of lobbying by Apple and other U.S. technology companies. See https://www.reuters.com/article/usa-trade-china-tech-int/consumer-tech-gets-reprieve-as-u-s-china-spar-over-tariffs-idUSKCN1HB204. See also https://9to5mac.com/2018/04/04/import-tariffs-china/.

[21] “How China Hit Donald Trump’s Supporters Where It Hurts as Tariffs Target Republican Party’s Heartlands,”  South China Morning Post, dated April 6, 2018, see http://www.scmp.com/news/china/diplomacy-defence/article/2140464/how-china-hit-donald-trumps-supporters-where-it-hurts (last visit on April 9, 2018).

[23] For the full speech in Chinese, see http://news.sina.com.cn/c/xl/2018-04-10/doc-ifyvtmxe8682980.shtml. See also https://www.cnbc.com/2018/04/09/chinese-president-xi-jinping-speaks-at-boao-forum-for-asia.html.

[24] “Very thankful for President Xi of China’s kind words on tariffs and automobile barriers...also, his enlightenment on intellectual property and technology transfers. We will make great progress together!” See https://twitter.com/realDonaldTrump/status/983774270886236161.