China on Monday has announced that it will raise tariffs on nearly US$60 billion American goods including wine to as much as 25% from 10%, starting from June 1, plunging the world’s two largest economies into full-throttle trade war.
The announcement came after the Trump Administration decided on May 10 to raise tariffs on US$200 billion Chinese goods, dashing any hope that the two countries might be coming to a deal after at least 11 rounds of top level trade negotiations.
The escalation has now plunged stock markets worldwide and shares of companies particularly dependent on China such as Apple, Caterpillar and Boeing all dropped.
The increase announced by China on Monday will be levied on goods that have been retaliated since the start of the trade war in March last year, including beer, wine, distilled spirits, tequila, and gin, according to the list published today by the Ministry of Finance.
If the tariffs comes into effect on June 1, this means American wine exports to mainland China would subject to as much as 54% just on import duty (15% +25% +regular 14% tariff). This would push taxes on American wines to close to 100% adding 16% VAT and 10% excise tax.
This would be the third round of tax increase on American wines. Last March, China slapped additional 15% tariff on American wine, and in September it added another 10%. On June 1, the 10% would be increased to 25%.
The increased threat of taxes would undoubtedly deal a huge blow to already afflicted American exports to China.
In 2018, American wine exports to China have experienced a sharp fall by nearly 25% to US$59 million, hampered by the prolonged US-China trade war that saw China slapping additional retaliatory tariffs on American wines.
Hong Kong, which enjoys zero wine tax, in 2018 nonetheless showed strong growth.
However, there’s still room for negotiation. Both sides have left time and space for negotiations before the higher taxes go into effect. China’s deadline is June 1, and the US’ 25% tariff targets products sent to the US by May 10, leaving a two-week window for a last-ditch talk to reach a deal.