The US and China started to implement additional tariffs on each other’s exports on July 6. The US Customs and Border Protection announced on July 5 that the US’s 25% additional import duties for Chinese goods would be effective with respect to goods entered, or withdrawn from warehouse on or after 12:01 AM US Eastern Standard Time on July 6. China’s customs authority said that China imposed counter-tariffs on some import products from the US at 12:01pm Friday immediately after new US tariffs took effect. After both countries announced their lists of US$50bn worth of targeted products that would be subject to additional tariffs on June 15, the tariffs on the first batch of US$34bn worth of products have officially come into effect.

A spokesperson from China’s Ministry of Commerce said that the US has ignited the largest trade war in economic history. The spokesperson said in a statement on July 6 that the US tariffs violated World Trade Organization (WTO) rules and the US has ignited the largest trade war in economic history. The spokesperson said that the Chinese side, having vowed not to fire the first shot, was forced to stage counter-attacks to protect the core national interests and interests of its people. On July 6, China lodged an additional complaint with the WTO over the tariffs formally implemented by the US based on a trade investigation under Section 301.

The USTR released on July 6 a product exclusion process for Chinese products subject to Section 301 tariffs. Interested persons must submit requests for exclusions by October 9, 2018. The USTR will evaluate each request on a case-by-case basis, taking into account whether the exclusion would undermine the objective of the Section 301 investigation. An exclusion, if granted, will apply retroactively to the July 6 date of the imposition of the additional duties. This process may eventually lead to the exclusion of certain products from the additional duties, but may has limited effect on easing the trade friction between the US and China.

The impact of the tariffs on the first batch of products may be limited, but future developments should be closely monitored. US$34bn represents less than 0.3% of China’s 2017 GDP and less than 0.2% of US GDP. The tariffs on the first batch of products should have limited impact on the economies of both countries, but the trade friction may further escalate. After both countries released their lists of US$50bn worth of products that would be subject to additional tariffs on June 15, US President Donald Trump issued a statement on June 18 directing the USTR to identify US$200bn worth of Chinese goods for 10% additional tariffs. Trump also said that if China increases its tariffs again, the US will pursue additional tariffs on another US$200bn of goods. At present, both countries have not imposed tariffs on the remaining US$16bn worth of products on the lists released on June 15. The USTR will issue a final determination after further review. Any new tariff will also undergo review and public comments before imposition.

Effectively implementing domestic economic policies will help China cope with external risks. According to a notice issued on July 6, the State Council would launch an inspection program for its departments and local governments. The goal is to make sure that government policies are implemented and the major tasks of social and economic development this year will be completed. The inspection covers six fields, including the battle of preventing major risks, reducing poverty and fighting pollution, and the revitalization of rural areas; the implementation of innovation-driven development, promoting new industries and upgrading traditional industries; and the reform to streamline administration, delegate powers, and improve regulation and services. With limited short-term impact from additional tariffs and further implementation of proposed economic policies, we expect China to maintain stable economic growth this year.