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Trade war

China runs low on ammo as it readies retaliatory tariffs

Limiting Hollywood movies and restricting students possible next steps for Beijing

While Chinese tariffs have put pressure on key U.S. industries, Beijing is running out of ways to respond to U.S. escalation.

BEIJING/NEW YORK -- China's plan to raise retaliatory tariffs on $60 billion of U.S. products next month aims to pile more political pressure on U.S. President Donald Trump, but it underscores Beijing's lack of options as Washington prepares its next salvo in the trade war.

Duties on about 5,200 American items will rise from 5-10% to between 10% and 25% as of June 1. The top rate of 25% will be levied on 2,493 items, including liquefied natural gas, lumber, wine and nuts. The move comes in response to the U.S. raising a 10% tariff on $200 billion in Chinese goods to 25% this month.

The scale of the tariffs, however, suggests Beijing is having trouble keeping up with Washington in the trade war. The U.S. has taxed a total of $250 billion in Chinese goods across multiple tariff rounds and is preparing one of $300 billion, covering nearly all of its remaining imports. Beijing's tariffs, meanwhile, already span more than 70% of its $150 billion in annual imports from the U.S., giving it less room to work with.

Some observers speculate that China could start expanding its retaliatory measures to American services via limits on screening Hollywood movies, a ban on travel to the U.S. or restrictions on studying in the U.S. But Beijing is expected to proceed cautiously out of concern that it could risk a lasting rift in its relationship with Washington.

The duties in place now have already slashed China's purchases from the U.S. The volume of American LNG imported tumbled 70% on the year for the period between September and February after the 10% tariff was imposed. Beijing has turned to Africa and the Middle East to make up the difference, and it signed a long-term supply contract with Qatargas last fall.

With the levy set to rise to 25% in June, the situation looks unlikely to improve for U.S. suppliers. An executive at an American oil field service company expressed concern that the U.S. could lose market share long-term, as it cannot compete with the lower cost of transporting LNG from Russia and the Middle East.

The American wine industry has been hit as well. Chinese imports of wine from California swelled fivefold in the decade through 2017, but reversed course after the September tariffs and are now down 25%.

"With each additional round [of tariffs], it becomes more and more difficult to compete in the fastest-growing wine market in the world," the head of the Wine Institute, a group representing California's wine industry, said last week.

And American lumber exports to China have sunk 40% since September. China is the top buyer of U.S. lumber, but American suppliers face stiff competition from Canada and Southeast Asia.

How much damage raising these duties would do to already-battered industries remains unclear.

Higher tariffs are also a double-edged sword. After Beijing imposed a 25% duty on soybeans last July, its imports from the U.S. plunged roughly 90% on the year by volume between August and last March, buying from Brazil and Russia instead. But because American soybeans are relatively cheap, this contributed to a 4% rise last year in the average price China paid for the oilseed.

The loss of access to a steady supply of U.S. LNG has dealt a significant blow as well.

The details of the latest tariff increase suggest Beijing is trying to minimize the effect on the Chinese economy, including the auto industry. The government will scrap 5% tariffs on 57 items -- including seat belts, doors and brakes -- that had been imposed in September.

China imports nearly $3 billion worth of auto parts from the U.S. annually, mainly for luxury vehicles. Auto production sank 12% on the year in the January-April period amid sluggish new-car sales, which likely spurred Beijing to provide support for domestic automakers via the tariff reduction.

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