Trump's trade war with China is heating up

Jim Watson/AFP/Getty ImagesChina’s President Xi Jinping (L) and US President Donald Trump review Chinese honour guards during a welcome ceremony at the Great Hall of the People in Beijing on November 9, 2017.

  • The trade battle between China and the US is heating up.
  • China responded to recent steel and aluminium tariffs from President Donald Trump with tariffs on 128 US goods.
  • The US will announce the details of a new round of tariffs by the end of the week.

The trade fight between China and the US is heating up.

Over the weekend, China unveiled its initial response to President Donald Trump’s steel and aluminium tariffs, as 128 US goods will be subject to new import taxes upon entrance to China.

The tariffs focused on agricultural products and industrial goods – featuring an additional 25% duty on eight goods, including scrap aluminium and some types of pork, as well as a 15% duty on 120 goods, including certain types of fruits, nuts, wine, and rolled steel.

The announcement comes days before the deadline for the Trump administration to announce a final list of Chinese goods that will be subject to additional 25% tariffs. In total, this second round of tariffs will hit $US50 billion to $US60 billion worth of Chinese goods.

The China-specific US tariffs are the result of an investigation by the US Trade Representative under Section 301 of the Trade Act of 1974. The USTR specifically looked into the forced transfer of US intellectual property to Chinese firms. According to reports, the US tariffs will apply to a wide selection of goods, with a focus on technology.

Once the Trump administration announces the goods, there will be a 30-day comment period before the tariffs go into effect.

It’s only just begun

China has not yet announced its response to the second wave of tariffs. Chris Kreuger, a strategist at Cowen Washington Research Group, said China’s retaliation could hint at how they will handle the newest trade move.

“The approximately $US3 billion in steel and aluminium tariffs against China were reciprocated with approximately $US3 billion in tariffs on 128 U.S. exports to China (tariffs of 15% to 25% on products including pork, nuts, wine, and fruits),” Kreuger wrote in a note to clients Monday. “It is important to note that the Chinese response to 301 is still TBD. If 232 is an indicator, it is probably fairly…reciprocal.”

So far China has not targeted key US exports like soybeans, which made up $US14 billion in US-to-China exports in 2016, but the threat is looming over the continued fight.

While tension has escalated, the two sides have reportedly opened talks about possible settlements to the trade dispute that could result in China opening its market to more US companies.

This does not mean, however, that the risks of escalation are not still present. Greg Valliere, chief global strategist at Horizon Investments, said Monday that while China is holding back for now, that does not mean the possibility of a trade war is diminished.

“This is a signal that China is prepared to do more, since these tariffs were in response to US steel and aluminium tariffs, not the $US60 billion in other tariffs announced by the US in response to widespread Chinese theft of US intellectual property,” Valliere said. “Talks on this bigger issue are underway between the two countries; failure to make progress in these talks could lead to serious Chinese tariffs.”

NOW WATCH: Briefing videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.