The US-China trade war has had an adverse effect on the world's second-largest economy. Image: iStock

It was always going to turn ugly. With trade tensions between China and the United States rising, there are growing fears this tit-for-tat spat could spill over into the broader global economy.

On Monday, Beijing rolled out tariffs worth US$3 billion on an array of US goods in response to US President Donald Trump’s decision to target cheap steel and aluminum imports.

Last month, the White House also warned China that it will impose duties of about $60 billion on a host of Chinese products to punish the world’s second-largest economy for what it sees as widespread violations of American intellectual property rights.

“It’s just chaos,” Robert Shiller, the Nobel Prize-winning economist and academic at Yale University, told CNBC. “It will slow down [global] development in the future if people think that this kind of thing is likely.”

China was always going to react after Washington’s opening salvos in what could turn out to be a fully fledged trade war.

National interests

Just 10 days ago, new Vice-Premier Liu He was quoted by the state-owned Xinhua News Agency as saying that the country was “ready to defend itself” against US tariffs.

“We are ready and capable of defending our national interests but hope both sides will remain rational,” he told Xinhua.

Those words were translated into action on Monday when China slapped extra tariffs of up to 25% on 128 US products, including frozen pork, wine and an assortment of fruits and nuts. They had been widely expected and match a list published by Beijing on March 23.

In a short statement, the Ministry of Commerce reported that it had suspended its obligations to the World Trade Organization to reduce tariffs on 120 US goods and they will now be raised by an extra 15%.

Eight other products, including pork, will now be subject to additional tariffs of 25%, it added, “with measures effective from April 2.”

“China’s suspension of its tariff concessions is a legitimate action adopted under WTO rules to safeguard [the country’s] interests,” a spokesperson from the finance ministry said.

Yet in Washington, there is growing concerns that Beijing is bending the concept of free trade to suit its domestic agenda and global ambitions.

An investigation under the 1974 US Trade Act found that China engages in unfair practices by obliging US investors to turn over key technologies to domestic firms.

Naturally, this view has been challenged by President Xi Jinping’s government. Close aide Liu was cited by Xinhua as saying the investigation report “violates international trade rules and is beneficial to neither Chinese interests, US interests nor global interests.”

Still, Beijing’s rhetoric has failed to impress Trump’s team of advisers, who are quick to highlight the record $375.2 billion trade deficit, which the US racked up with China last year.

Arch critic

In February, the surplus with the US stood at $21 billion, official data from the General Administration of Customs showed, more than double the $10.4 billion reported during the same period last year.

Even one of Trump’s arch critics, the Democrat Senator Elizabeth Warren, said after a three-day visit to China that US policy had been “misdirected” and that she was not afraid of tariffs.

“We told ourselves a happy face story that never fit with the facts,” Warren told the media. “Now, US policymakers are starting to look more aggressively at pushing China to open up the markets without demanding a hostage price of access to US technology.”

Perhaps, though, there might be a glimmer of light to pierce the gloom hanging over Sino-US trade relations.

Analysts point to the fact that tariffs on major US exports to China, such as soybeans, were not included on the list, a sign that Beijing is desperate to avoid an all-out trade war.

“The amount subject to tariffs is not big, which shows China is willing to ease the intensity of the trade conflict that was started by the US,” Shi Yinhong, the director of the US research center at Renmin University in Beijing, told The Guardian newspaper. “Trump gave us a heavy shot and China is giving a light shot back.”

But more volleys could be on the way. “Even if this conflict can be eased, it won’t last long,” Shi added. “There will be rounds after rounds of trade wars in the future.”

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