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Trade War Tit-for-Tat Escalates

On Friday, the US announced a 25% tariff on $50 billion of Chinese goods “that contain industrially significant technologies.” It took China a few hours to retaliate.

The Wall Street Journal reports China to Impose Tariffs of 25% on 545 U.S. Products.

US Tariffs

  • A list of products issued Friday by the U.S. Trade Representative’s Office covers 1,102 separate U.S. tariff lines, focusing on products from industrial sectors that contribute to or benefit from the “Made in China 2025” strategic plan. That includes industries such as aerospace, information and communications technology, robotics, industrial machinery, new materials, and automobiles.
  • The USTR said the list includes an initial group of products that cover approximately $34 billion worth of imports from China for which Customs and Border Protection will begin collecting duties on July 6, and an additional group of products covering approximately $16 billion in imports from China that will undergo further review.

China Response

  • China to impose tariffs of 25% on 545 U.S. products on July 6: State Council
  • U.S. products subject to immediate Chinese tariffs include farm, automobiles and seafood products: State Council
  • China to impose tariffs on additional 114 U.S. goods on a future date: State Council
  • Additional U.S. goods subject to Chinese tariffs include chemicals, medical devices and energy products: State Council

US Chip Makers to Pay Tariffs On Their Own Chips

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Thanks to complicated trade rules , and of course the imposition of tariffs in the first place, US chip makers complain We’ll End Up Paying Tariffs on Our Own Goods.

The U.S. semiconductor industry bristled at President Donald Trump’s plan to impose tariffs on about $50 billion of Chinese goods, arguing they will hurt American business and make the country less competitive.

The new rules will place 25% tariffs on a variety of semiconductors when they go into effect July 6. China immediately vowed to respond with its own duties on American goods with “equal scale and equal strength.”

While the U.S. tariffs may impair Chinese companies that use semiconductors, among others, the fallout will also extend to U.S. businesses that participate in the complex supply chain of chip manufacturing, according to the Semiconductor Industry Association, a U.S. trade group.

That is because the vast majority of chips American companies import from China are designed in the U.S. The manufacturing of many components in those chips often starts in the U.S. as well, before they are shipped to China for assembly, testing and packaging.

That US Chip makers will end up paying tariffs on their own chips is not only stupid, it calls into question the true deficit numbers in the first place. What exactly is an "import"?

Regardless of the answer, the foolishness if this trade war is readily apparent. Forcing US manufacturers and consumers to pay more for goods will harm US growth and cost US jobs.

Mike "Mish" Shedlock