Is China Running Out Of Retaliatory Ammunition In The Trade War?

Authored by Jot Dantong Ma via,

Since the first shot in the US-China trade war was fired in March 2018, markets have gyrated and negotiations have sputtered. Yet few have closely examined the extent of China’s retaliatory tariffs on US exports, and more importantly, what a full-blown trade war could mean for US exports.

As of today, Beijing has taxed $110 billion worth of US goods, prompting many to argue that China can’t keep up the tit-for-tat contest because China only imported $130 billion of US goods in 2017, according to the US International Trade Commission. However, American and Chinese trade statistics exhibit large discrepancies due to different methodologies. Based on China’s Customs data, the United States exported $154.4 billion to China, which means that as far as Beijing is concerned, it can tax an additional $44 billion as retaliation.

The following analysis fully breaks down the $110 billion worth of US goods that Beijing has taxed so far and looks into the $44 billion of additional US exports that could be the potential target of future retaliation.

What China Has Done in the Past 15 Months

  • First tranche: Imposed 25% tariffs on $50 billion of US goods (Summer 2018).

  • Second tranche: Imposed 10%, 10%, 5%, and 5% tariffs on four different lists of US goods that totaled $60 billion (September 2018).

  • Third tranche: Raised tariff rates to 25%, 20%, and 10% on the first three lists and kept 5% on the fourth list of the same $60 billion of US goods (May 2019).

Combined, these five tariff lists consist of 4,159 types of US exports to China, covering 78.5% of a total of 5,299 types of US exports in 2017 (see Figure 1).

The first tranche of tariffs was largely aimed at agricultural and mineral products and automobiles, most of which are easily substitutable goods. The second tranche, whose tariff rates just went up in May, shifted its target to manufacturing sectors, covering machinery and mechanical equipment.

What Could China Still Tariff If Retaliation Escalates?

  • Option 1: Further raise rates on the list of products that are currently subject to 20%, 10%, and 5% tariffs.

  • Option 2: Of the current $44 billion of untaxed US exports, impose tariffs on $23 billion worth of exports, including kraft paper, scrap copper, and certain types of retail drugs.

  • Nuclear Option: Impose tariffs on everything, including $21 billion worth of US exports in chips and airplanes.

A quick break down of the $44 billion of untaxed goods – Option 2 plus the Nuclear Option – reveals that the goods are scattered across 14 industries, with some concentration in vehicles, aircraft, and machinery.

Upon further dissection, one finds that 1,138 items out of the total 1,140 untaxed goods make up more than half ($23 billion) of the $44 billion (see Figure 2). If China were to enact Option 2 as further escalation, goods such as kraft paper, scrap copper, and certain types of retail drugs will be the prime targets.

That leaves just two types of goods that account for 48.5%, or $21 billion, of the $44 billion: airplanes and other aircraft of an unladen weight exceeding 15,000 kg (6-digit HS Codes 880240, $13 billion) and integrated circuits (IC) as processors and controllers (6-digit HS Codes 854231, $8 billion).

Although China has so far exempted these two types of goods from tariffs because substitutes are not readily available, it is not inconceivable that Beijing could impose some tariffs in the event of a Nuclear Option. Take electronic IC (HS Codes 854231) for example. China imported over $100 billion worth of this product every year, but only 8% of those imports originated from the United States. By far the largest source of IC exports to China is Taiwan. So if China imposed tariffs on IC exports from the United States, it could theoretically increase its imports from Taiwan, Japan, and South Korea assuming there is sufficient capacity to accommodate.

In the case of airplanes (HS Codes 880240), the United States (Boeing) has a whopping 57% share of Chinese imports. However, that share has been declining steadily since 2015, as France (Airbus) has gained market share. For instance, during his state visit to France, President Xi Jinping sealed a $35 billion deal of 300 planes with Airbus.

So if President Trump makes good on his threat to tax all Chinese exports, then it’s not unthinkable that Beijing could reciprocate with its own nuclear option that includes taxing $13 billion of US airplanes and $8 billion of chips.

A full list of US exports and their current tariff rates at the 6-digit HS level can be downloaded here.

This post has been republished with permission from a publicly-available RSS feed found on Zero Hedge. The views expressed by the original author(s) do not necessarily reflect the opinions or views of The Libertarian Hub, its owners or administrators. Any images included in the original article belong to and are the sole responsibility of the original author/website. The Libertarian Hub makes no claims of ownership of any imported photos/images and shall not be held liable for any unintended copyright infringement. Submit a DCMA takedown request.

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About The Author

Tyler Durden

Zero Hedge's mission is to widen the scope of financial, economic and political information available to the professional investing public, to skeptically examine and, where necessary, attack the flaccid institution that financial journalism has become, to liberate oppressed knowledge, to provide analysis uninhibited by political constraint and to facilitate information's unending quest for freedom. Visit

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