As Yuan Drops, Trump Considers Increasing Tariffs

President Trump had threatened to impose a 10% import tax on $200 billion in Chinese imports. Now, he is considering increasing that figure to 25%.

The proposal is backed by Administration advisers who say the increase is necessary to make up for the recent depreciation of the Chinese yuan, which has dropped 6% against the USD since May 30th. 

“Once you go down the road of using tariffs to disrupt the Chinese, you have to say 25% compared to 10%,” says China expert Derek Scissors.

Trump has already imposed a 25% tariff on $34 billion worth of Chinese goods, and a similar tariff will go into effect for $16 billion Chinese goods in the coming days. Late last month, Trump said he was “ready” to tax all $500 billion worth of Chinese imports.

A higher tariff on the $200 billion would need to be announced before public hearings on the proposal begin on August 20th. 

The $200 billion list of goods, which includes tilapia, lighting products, and printed circuit boards, is expected to have a much bigger impact on consumers than the previous rounds of tariffs. 

“Given the scope of the products covered, about half of all imports from China are facing tariffs, including consumer goods,” says Erin Ennis of the US-China Business Council. “The cost increases will be passed on to customers, so it will affect most Americans’ pocketbooks.”

The proposed increase follows a failure from Washington to make any real progress in settling the trade dispute with China and in forcing Beijing to abandon practices which facilitate the illegal transfer of intellectual property. 

Treasury Sec. Steven Mnuchin and Chinese envoy Liu He have discussed a future meeting, but talks remain in the preliminary stage. Trump has already vetoed Mr. Liu’s proposal to buy $70 million of US farm, energy, and other products. 

Another factor here is Trump’s recent deal with the European Union, which could substantially weaken China’s future negotiating position.

The United States and the EU “agreed to use the World Trade Organization to deal with intellectual property theft, government pressure on companies to transfer technology, and the operation of state-owned industries – all code words for alleged trade infractions by Beijing,” reports The Wall Street Journal. 

China is also struggling with economic troubles including corporate defaults and weakening investment, which could limit its promised retaliation against the US on trade.