China: Impact of US Tariff Hikes on Manufacturing Controllable

The goods on which additional tariffs have been imposed account for 41.8 percent of China's exports to the U.S., but only eight percent of China's total exports, vice minister of industry and information technology, Wang Zhijun explained.

The latest round of tariff hikes of 25 percent on US$200 billion worth of Chinese goods by the United States (U.S.) government will result in an increase of operation costs, lower competitiveness and fewer orders, but their impact in the Asian country’s manufacturing sector is generally “controllable”, a state senior official told Xinhua in an interview.

The goods on which additional tariffs have been imposed account for 41.8 percent of China's exports to the U.S., but only eight percent of China's total exports, vice minister of industry and information technology, Wang Zhijun explained, adding that about half of the affected companies are foreign-funded enterprises, including many U.S. firms.

The Caixin/Markit Manufacturing Purchasing Managers' Index (PMI) read 50.2 in April 2019 falling from an eight-month high of 50.8 in March. A reading above 50 indicates expansion, meaning the manufacturing sector continues to grow. Yet industrial profits have dropped 3.7% year-on-year to 515.4 billion yuan (US$74.80 billion) in April, according to the National Bureau of Statistics (NBS), although it is partly due to a high base of comparison from the previous year.

As a response, China's Commerce Ministry spokesman Gao Feng announced his country will take all necessary measures to safeguard the rights and legitimate interests of Chinese companies and demanded the U.S. correct its "wrongful actions," as steps are been taken in order to remedy the present and future impact of U.S. President Donald Trump’s tactics.

This comes as bilateral relations between both nations have soured since failed trade talks and the start of the tariff wars. Trump has announced that he'll meet face-to-face with Chinese President Xi Jinping at the G20 summit late June, hoping to find a new channel to deescalate the situation.

However, in the long run, the growing Chinese economy will focus more and more on added value products and innovation as the main engine to propel the expansion of China's manufacturing industry.

Vice Minister Wang said the government will place more emphasis and urge companies to increase research and development investment with more tax cuts and fund issuances for innovation projects.

One of Xi's main economic goals is to upgrade his country’s industry while exporting Chinese standards, mainly done through trade and connections via the One Belt, One Road Initiative. This reimagining of the Chinese industrial approach will be based on Germany’s industrialization 4.0 strategy, which aims to a more innovation-driven economy rather than a manufacturing-focused industry.