New tariffs of 25% were imposed on an additional US$34 billion worth of goods exported from China to the US on 6 July, and China plans to retaliate.

The US-imposed tariffs on China pack a bigger punch for the second-largest economy in the world. China relies more heavily on the export sector than the US, with US$506 billion exported from China into the US and US$130B exported from the US into China. Chinese markets did slip following the 25% tariff US President Donald Trump imposed on Chinese goods earlier this month, as reported by CNBC. Shenzhen felt the biggest hit with a 5.77% dip in their market, Shanghai declined 3.82%, and the Hong Kong market fell by nearly 3%.

The tit-for-tat move has already begun affecting other worldwide markets. Trump also imposed tariffs on goods from Canada, Mexico, and the European Union, primarily steel and aluminium. Canada responded with a list of items from the US that will receive tariffs from the Canadian government. Mexico and the European Union also responded in kind.

In Mexico, there were further talks of imposing tariffs on US corn and soy as a phase-two move, said Bosco de la Vega, who heads Mexico’s main agricultural lobby, the National Farm Council, as reported by Reuters.

Many of the goods tariffed by US’s allies were chosen specifically because they are produced in swing states or historically Republican states, with potential political ramifications.

China is now in talks with France to strengthen its business relationship between the US-tariff affected countries and sidestep the necessity of at least some US business deals. The South China Morning Post (SCMP) reported that China discussed the possibility of buying Airbus jetliners and farm produce from France and signed an agreement to import beef. China will also be working on allowing France greater access to Chinese markets.

“We believe that relevant frictions and disputes can be resolved via talks. There are no winners from fighting a trade war,” China’s premier, Li Keqiang said. “All sides should join together to expand growth and not engage in putting up trade barriers or protectionism. This is good for nobody.”

However, if the trade war is to continue, the effects could ripple far further than the immediate parties involved of China, the US, Canada, Mexico, and the EU. China utilises raw materials and components manufactured in the countries and regions of the US allies of South Korea, Japan, and Taiwan, as reported in the SCMP.

If additional tariffs are enacted against China, the effects could be much more far-reaching. The ripple effect could be long-lasting, not only in damage to economies, but also the global supply chains of every country involved.

Zhang Zhiwei, chief economist of Deutsche Bank in Hong Kong, said, “In 2015, nearly 37% of China’s exports to the US were value-added goods derived from other countries,” as reported by the SCMP. He continued, “When an iPhone is shipped from China to the US, it is actually South Korea, Taiwan, Japan, China, and the US itself who are sending exports to the US.”

Sources: SCMP and CNBC