Fresh US tariff proposal threatens to disrupt commodity trade

In comments on his Twitter account on Thursday August 1, Trump said that “Trade talks are continuing, and during the talks the U.S. will start, on September 1st, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country. This does not include the 250 Billion Dollars already Tariffed at 25%.”

In comments made later that day to reporters at the White House, Trump said that the period before the new tariffs go into effect was to allow for existing shipments to pass and was not meant to provide a window for negotiations.

The decision to implement the additional tariffs was a result of China’s failure to resume purchases of US agricultural products and its continued export of the illegal drug fentanyl, Trump said.

It is unclear what goods will be included on the tariff list – in particular, whether the 10% tariff will apply to minerals that were initially included, then removed, from the 25% tariff list that was announced in September 2018 and put into effect in May 2019.

Goods that were excluded from this list include several critical minerals that are produced predominantly in China. Those minerals are antimony, indium, barite, rare earths and refractory materials.

A tariff on any of these would be significant since there are few alternative sources for these goods.

“This time indium will get hit by this new 10% tariff and this will put even more pressure on Chinese producers, which will need to sell at a significant discount to maintain US share,” an indium trader in the US said.

Other indium producers in the US view the new duties as a positive, since they will be able to increase their prices.

The tariffs also raise the possibility of retaliation from China, including a ban on exports of rare earths.

“If the US includes rare earths, they will be shooting themselves in the foot,” a rare earths trader said, dismissing the notion of these materials being subjected to any kind of duty. “If there is any restriction, China will counteract.”

As well as potentially affecting commodity imports, the new tariffs are likely to hit almost all manufactured goods transported from China to the US.

This is likely to suppress Chinese manufacturing, hitting demand for several raw materials. For example, the Chinese electronics industry is a key driver of demand for rare earths, lithium and cobalt while soda ash demand is tied to the Chinese glass industry.

Cristina Belda in London contributed to this report.