Beijing hits back: 84% tariff threatens US economy, Xi Jinping hints at global realignment

China has hit back at the US by increasing its tariff from 34% to 84%. It is apparently in retaliation to the US decision to impose a tariff of 104% on Chinese goods. Washington exported goods worth $143.5 billion to China in FY 2024. Its main items of exports were soybeans, grains, fuels, and machinery. These products will become prohibitively expensive in China with a tariff of 84%. China may encourage imports of soybeans from Brazil and Argentina and also reduce its demand. The US exported soybeans worth $13.4 billion to China. 

US: Inflation may soar, consumption may fall

Washington imported goods worth $438.9 billion in FY 2024, the main items were consumer goods like electronics, clothing, and toys. It will take years to set up plants to produce these items. Besides, it will be challenging to produce cheaper products because of the high labour cost and other input costs. The US consumers may still pay higher prices, which may push inflation and reduce consumption. 

Higher prices due to increased tariffs may make the US products in China highly uncompetitive. It may disrupt the supply chain and push the prices up, which may further inflame the rate of inflation. 

Chinese economy may suffer

China may also suffer and the consumers may have to pay more because 
US goods like poultry, sorghum, and tech components will become far more expensive. It may hit Chinese consumers at a time when the economy is struggling with falling domestic demand and an increasing property crisis.

The Chinese economy has been struggling due to sluggish demand and falling exports for several reasons. It could somehow register a growth of 5% in FY 2024. But it may in 2025-26 considering a possible fall in its exports. 

Xi Jinping hints at Global realignment 

The US-China trade war may trigger global realignment. The first indication came from Chinese President Xi Jinping who had pledged to strengthen the strategic relationships with neighbouring countries by “appropriately” managing differences and enhancing supply chain ties as the Trump administration escalated the tariff war with Beijing. Xi urged to build a community with a shared future with neighbouring countries