In retaliation against American import tariffs, China on Wednesday unveiled its own list of 106 U.S. export products that will be subject to 25% tariffs, including soybeans, cars and chemicals, sparking fears of a full-blown trade war between the world's two largest economies.
The list, announced by the finance ministry on Wednesday, covers 106 products worth $50 billion imported from the U.S. which also includes aircraft, whisky and certain plastic products.
The U.S. decision "severely infringed on the legitimate rights and interests that China enjoys in accordance with World Trade Organization rules, and threatened China's economic interests and security," China's finance ministry said in a statement.
Analysts say China's soybean tariff will hit U.S. President Donald Trump's Republican Party in particular. Key soybean producing regions such as Iowa, Ohio and Michigan are hotly contested states where approval ratings for the Republicans and the Democratic Party are even. Notably, semiconductors are not on Beijing's list, possibly out of fears that China's smartphone industry could be affected.
The move marks an escalation of the trade tensions that was started by Trump who had pledged to reduce the U.S. trade deficit by $100 billion. The U.S. trade deficit with China rose to its highest level of $375 billion in 2017. The U.S. announced additional import tariffs on steel and aluminium in March, and China responded by raising tariffs on U.S. pork and wine, among other items.
Wednesday's tit-for-tat measures rippled across global markets as investors grew weary of a trade war. Hong Kong's benchmark Hang Seng Index closed down 2.2% on Wednesday. Shares in Thailand slumped 2.3 percent to their lowest close in over three months. Shares of U.S. aircraft maker Boeing fell more than 5% during pre-market trading in New York.
Chicago Board of Trade soybean futures also fell. The U.S. is the second biggest supplier of soybeans to China, the world's largest consumer of the grain. The Chinese pork industry, the world's biggest, is reliant on soybean meal as a feed. The current tariffs could trigger an inflation in the price of pork.
Earlier on Wednesday, the U.S. listed some 1,300 Chinese products worth $50 billion that could be subject to additional tariffs. China reacted by saying it planned to resort to the WTO dispute settlement mechanism and take retaliatory measures of equal scale and strength against the U.S.
"U.S. tariffs target mainly the 'Made in China 2025' strategy, Beijing's industrial development program, rather than purely the [Chinese] trade surplus," said Alicia Garcia-Herrero, Asia Pacific chief economist at Natixis. The strategy, announced in 2015, underlines 10 sectors China wants to strengthen, such as robotics, advanced rail transport and biomedicals.
The U.S. tariffs are unlikely to come into effect for several weeks. Vice Finance Minister Zhu Guangyao reportedly said he still hoped relations could return to a healthy track, since a trade war could hurt all sides.
Wataru Suzuki, Akane Okutsu and Eri Sugiura