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China vows to retaliate as US threatens tariffs on further $200bn of goods

China vows to retaliate as US threatens tariffs on further $200bn of goods

Read more on Guardian (US)

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  • Adverse effects of increased tariff can only be avoided if the sufficient amount of alternatives is cheaply secured.

    Because the US is isolating itself imposing additional tariffs not only to China but to everybody, there is no way to substitute Chinese import with other imports and domestic production

    Adverse effects of increased tariff can only be avoided if the sufficient amount of alternatives is cheaply secured.

    Because the US is isolating itself imposing additional tariffs not only to China but to everybody, there is no way to substitute Chinese import with other imports and domestic production is the only choice.

    But especially for the capital intensive products, it comes with a substantial amount of investment of lead time to get back the production, and even if the production is realized, they will be lack of cost effectiveness if we consider the reason why the production was offshored in the first place.

    As for China, not only do they have rather excessive production capacity for many products, they have abundant alternatives of import. The critical issue for this trade war is embodied by soy beans; 85% of Chinese annual demand is covered by import which consists of the US by 35% while 62% of the US export goes to China.

    As of the end of June, 600,000 of the US soy beans has been canceled due to its estimated $50 higher price than Brazilian one. Other than Brazil, Russia will also be an alternative. Chinese largest crop trader COFCO recently announced they will purchase southern Russian ports at $400 mil which will be converted to be crop-export-oriented, and CNADC announced the joint venture project with Russian companies to pride and process soy beans.

    Unlike the tariff barriers, investment is irreversible and now even if the trade is over, soy beans export to China won’t possibly come back, This will bring devastating damages to the US midwest which is Trump’s support base, but a great windfall to Russia!!!