Amid a trade face-off between two of the largest economies in the world, the United States and China, oil prices tumbled by two per cent after Donald Trump announced that he would increase the tariffs on $200 billion of Chinese goods to 25 per cent. The announcement came in the middle of trade talks between the two superpowers and the arrival of Chinese Vice Premier Liu He in the US.
Trump said that China has been paying 25 per cent tariff on $50 billion of high tech products and 10 per cent on other commodities. The 10 per cent tariff has been increased to 25 per cent whereas the $350 billion of additional Chinese products imported by the US remained untaxed and will now be charged at 25 per cent tariff, he added.
The announcement has sent the oil prices tumbling below their last closure. US West Texas Intermediate (WTI) crude futures were at $60.51 per barrel at 0526 GMT on Monday, down $1.43 per barrel, or 2.3 per cent, from their last settlement.
Brent crude oil futures fell below $70 per barrel, trading at $69.33 per barrel, down $1.52 per barrel, or 2.2 per cent, from their last close, the Reuters reported.
China, US trade negotiations suffer a setback?
The ongoing trade talks between the US and China may be affected after Trump's tariff hike decision announcement putting the future deal between the two countries in jeopardy. The US had earlier expressed its concerns about China's trade surplus, alleged theft of intellectual property and forced technology transfers to the latter. Both Trump and the Chinese President agreed on December 1 to extend a tariff truce so that the senior trade officials on both sides come up with a solution, the Bloomberg reported.
But the negotiations seem not to have made a much of a headway after Trump announced the tariff hikes which has put more pressure on China now. The tougher stance adopted by the US according to the experts might even provoke an asimilar reaction from the Chinese side which would now levy a heavy duty on US imported products.
"Risks of a full-blown trade war are escalating," said Chua Hak Bin, a senior economist at Maybank Kim Eng Research Pte. in Singapore. "Trump's threat may backfire as China will not want to negotiate with a gun pointing at their heads," he added.
Trump- the tariff man vows to boost the US economy through taxes?
Even as Trump has been praising his administration for helping the US economy gross over $15.5 billion through the introduction of various tariffs since February 2018, the fact of the matter is that the new hike in imported taxes would also impact the US companies as well as the customers. Many of the products imported from China into the US include metals such as aluminium, steel, equipment like washing machines and high-tech supplies.
Although the US President is claiming of pumping billions of dollars into the treasury by getting China to spend on the tariffs, the truth is that China has increased the manufacturing as well as retail prices of many of these imported products which ultimately affects the customers.
China is also charging a tariff of 25 per cent on $50 billion of imported goods from the US and may even increase the tariff on additional products that were exempted from the tax. However, the analysts say that Trump's move of increasing tariffs may inject $32.5 billion every year into the US economy.