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Trade War

US and China hit each other with tariffs in round two of trade war

Negative impact of $16bn of tariffs is likely to spill across Asia, global markets

Donald Trump campaign banners are produced by Jiahao Flag Co. in China.   © Reuters

TOKYO -- The U.S. and China hit each other on Thursday with $16 billion of tariffs on imports, as talks between officials from the world's two biggest economies were unable to resolve the dispute.

The second list from U.S. President Donald Trump's administration targets alleged Chinese violations of intellectual property rights, and includes tariffs of 25% on goods including semiconductors, electronic parts and plastics. Beijing hit back immediately.

China's Ministry of Commerce said in a statement that the country firmly opposes the latest implementation and will continue to fight back, and file a compliant about the U.S. action with the World Trade Organization. The nation's foreign ministry said later that it hopes for a good result from trade talks, and that the U.S. can meet China halfway.

The tariffs are set to hurt both Chinese and U.S. companies. For example, about 60% of semiconductor-related products imported from China were originally designed or licensed by U.S. companies to be manufactured in Asia's largest economy.

Since China joined the World Trade Organization in 2001, companies around the world have set up factories in the country, building intricate supply chain networks. Companies in places such as Japan, South Korea, Taiwan and Europe manufacture products in China and export to the U.S.

An escalation of the trade war will hurt the global economy. People's Bank of China adviser Ma Jun said the U.S.'s two rounds of tariffs on a total of $50 billion of imports will reduce China's gross domestic product by 0.2 percentage point.

Toru Nishihama, chief economist at Dai-ichi Life Research Institute in Tokyo, said further tariffs would affect Southeast Asian supply chains that rely on China.

There will be a greater impact if tariffs are imposed on products such as electric appliances and smartphones, although "that would also negatively impact the U.S. side," Nishihama said.

Financial markets across Asia had a muted reaction to Thursday's development, which had been widely expected. China's Shanghai Composite Index, the equity benchmark, was up 0.5% in afternoon trading, although Hong Kong's Hang Seng Index was trading lower. The yuan weakened against the dollar. Elsewhere, Japan's benchmark Nikkei 225 stock index ended 0.2% higher.

The International Monetary Fund has criticized protectionist policies. "Not only do they lead to more expensive products and more limited choices, but they also prevent trade from playing its essential role in boosting productivity and spreading new technologies," the IMF said.

White House Press Secretary Sarah Sanders said that the U.S. side was looking to see "better trade deals for the United States." At a press briefing on Wednesday, Sanders said, "The president wants to see free, fair and more reciprocal trade between other countries, particularly with China, and we're going to continue in those conversations."

Richard Koo, chief economist at Nomura Research Institute in Tokyo, wrote in a report this week that the longer the tariff-centric trade war lasts, the more the global economy will suffer.

"When faced with extreme uncertainty, after all, most private-sector companies will not only discontinue any forward-looking behavior but will also do whatever is necessary to protect themselves in the present," Koo said.

The economist added that the Chinese government's struggle with various domestic issues, as well as a slumping economy and stock market, will make it harder for Beijing to maintain a hard-line stance.

"A compromise plan that allows China to save face could be approved by President Xi (Jinping) now that his own circumstances have changed," Koo said. "That suggests there may be a way to prevent the US-China trade war from escalating further."

Nikkei staff writer Akane Okutsu contributed to this report.

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