US-China Trade: Avoiding the Costs of Escalation

While prospects for a near-term rapproachement in US-China trade discussions have increased, the probability of a grand bargain that would reduce bilateral tariff levels meaningfully remains extremely low. This note describes how new and threatened rounds of bilateral tariff escalation on September 1 and December 15 will weigh on trade flows on an industry-by-industry basis, utilizing detailed tariff subheading data and a lesser-known China Customs database.

To date, the fall in China’s exports to the US has been concentrated in machinery and electrical equipment, which is mirrored by weak industrial production volumes. Combined, the September 1 and December 15 US tariffs cover half of China’s exports to the US in machinery and electrical components and other miscellaneous manufacturing, and nearly 100% of China’s exports of textiles, apparel, footwear, and precious metals.

As China’s retaliation cannot match US escalation, two-thirds of China’s imports from the US subject to September and December tariffs are already subject to earlier retaliation. Imports from the US subject to tariffs for the first time in September include mineral products, while retaliatory tariffs scheduled for December will hit US plastics, rubber, precision instruments, and transportation equipment exports to China.

Posted October 2, 2019
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