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Global Geopolitical Series: Will China’s weak retaliation trigger phase three of tariff war?

On Monday, U.S. President Donald Trump announced 10 percent tariffs on $200 billion worth of Chinese goods, which will come into effect on September 24th of this year and will increase to 25 percent if a trade deal is not agreed on principle or serious negotiations begin by starting next year. President Trump has also threatened to pursue phase three in the ‘tariff war’, which is to impose tariffs on the next $267 billion worth of Chinese goods, if China retaliates against U.S. decision, instead of negotiating.

Despite the threat, China retaliated in kind and vowed to respond further. China announced on Tuesday that it will impose tariffs on additional U.S. goods worth $60 billion. The Customs Tariff Commission of China unveiled lists of 3,571 items of U.S. products to be subject to additional tariffs of 10 percent, and lists of another 1,636 items to be subject to additional tariffs of 5 percent. Both China and the United States have imposed 25 percent tariffs on $50 billion imports from each other.

Compared to the size of the U.S. tariffs, China’s action remains weak, which is, however, not surprising as, in 2017, China exported $505.5 billion goods to the U.S., compared to United States’ $129.9 billion. But the question is - Since the Chinese action is nonetheless a retaliation, will President Trump pull the trigger on phase three and how would China respond to that?  

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