July 5, 2018 11:45 AM, EDT

Here’s Where China Stands as Hour of US Tariffs Approaches

Chinese and U.S. moneyTT File Photo

The world’s two largest economies are set to slide deeper into a trade conflict July 6 that’s roiled markets and cast a shadow over the global growth outlook.

In Beijing, policymakers are digging in for what could be a protracted fight — one in which they say they won’t be the aggressor. If the United States begins imposing additional steep tariffs on Chinese imports as of July 6, then Beijing is poised to respond in kind. With further tit-for-tat levies already threatened, this week could mark the start of a new and damaging phase.

The U.S. imposition of tariffs on $34 billion of China’s exports will not only hurt China, but America itself and the rest of the world, Gao Feng, China’s Commerce Ministry spokesman, said at a regular press conference in Beijing July 5. Beijing’s retaliatory tariffs will become effective “immediately” after the United States acts, according to the customs authority.

The looming tariffs also have  weighed on markets, prompting central bank officials to seek to reassure investors.

Here’s a rundown of the key facts about China’s position in the conflict:

What goods are to be targeted?

On June 15, President Donald Trump said the U.S. would begin charging additional duties of 25% on $50 billion worth of Chinese imports in response to what he says is theft of American intellectual property. That’s split into two rounds — $34 billion now and $16 billion later.

China responded with a statement saying it would fight back with “equal scale, equal intensity.” Beijing is targeting soybeans, corn, wheat, rice, sorghum, beef, pork, poultry, fish, diary products, nuts and vegetables, and autos in its first round of counter measures.

When will these actually start being levied?

The first wave of U.S. tariffs on $34 billion of Chinese exports will take effect on July 6, according to a statement from the U.S. Trade Representative, which didn’t specify a time. China’s response of additional tariffs on U.S. goods will be effective “immediately” thereafter. If the U.S. tariffs come just after midnight July 6 in Washington, that’s midday July 6 in Beijing.

How will it be implemented?

China’s customs service will adjust its systems so the new tariffs will start being charged after the United States does. When products on the list for extra tariffs are declared to customs, the importer will pay the additional levies.

Declaration rules vary for different products, according to Xu Qing, a saleswoman at Reg’s, a logistics company based in Shanghai that provides customs clearance service to Chinese importers. Time-sensitive products such as fresh seafood and fruits can be declared before arrival, while for products like auto parts and soybeans, that can only be done after arriving on the docks.

Are markets ready?

Chinese stocks have taken a beating in recent weeks, entering a bear market, as concerns about the trade war have mingled with worries about how an ongoing debt-control campaign will feed through into the outlook for economic growth.

The benchmark Chinese stock index closed 0.9% down on July 5, falling for a second day and extending the loss for the year to more than 17%. In early trading July 5, U.S. stock futures were higher.

People’s Bank of China Party Chief Guo Shuqing sought to calm markets, saying bond market risks are controllable and the economy is capable of bearing the impacts of trade frictions. The economic fundamentals mean a sharp depreciation of the yuan is unlikely, he said in an interview with the Financial News.

The yuan was basically unchanged July 5 despite the strongest daily reference rate since October. China’s currency suffered its worst quarter since 1994 in the three months through June, raising questions over whether the government was deliberately letting it slide as a tactic in the trade war.

“All eyes are on the Trump administration’s move to impose the 25% additional tariff on Friday and what’s next after that,” said Zhang Gang, Central China Securities Holdings strategist in Shanghai. “The trade war is a constant overhang for the markets and I don’t see it being removed any time soon.”

What can the real-world impact be?

The tariffs are already having an effect. As an example, Chinese companies are reselling U.S. soybeans, and Chinese companies are expected to cancel most of the remaining soybeans they have committed to buy from the United States in the year ending Aug. 31, once the extra tariffs take effect.

Xu, the saleswoman at the logistics company, said some of her clients are thinking about diverting goods to other nations, importing less from the United States, or bargaining with their American sources to see if they will lower prices to compensate for rising costs.

In China, what will the economic impact be?

It depends on what happens. In the scenario where the United States and China just stick to this round of tariffs — $50 billion of imports — and go no further, then the drag on China’s economy would be 0.2 percentage point of growth in 2019, according to Bloomberg Economics’ calculations.

If things escalate, then the hit will be bigger, cutting as much as half a percentage point from growth. China’s economy grew by 6.9% in 2017 and the government has set a target of 6.5% for the current year.

What about Asian supply chains?

It may not be China that stands to lose the most if the United States imposes tariffs, according to Bloomberg’s chief economist Tom Orlik. The high share of foreign value-added in China’s sales to the United States means the costs will be spread across Asian neighbors that supply components. If China’s exports were to drop 10%, Taiwan, Malaysia, and South Korea would all suffer a markedly larger blow to growth than China.