China passes tariff law as tensions with trading partners simmer

BEIJING (Reuters) -- China on Friday passed a law leaving its biggest trade partners in no doubt that it can hit back should they put tariffs on the exports of the world's No.2 economy as Washington and Brussels take aim at Beijing over excess industrial capacity.

The Tariff Law, which was approved by China's top legislature after three rounds of deliberations going back to 2022, is the latest addition to Beijing's arsenal of trade defense instruments as it maintains an uneasy truce with the U.S. following a trade war that kicked off during the Trump administration.

The law, which will take effect from Dec. 1, outlines a range of legal provisions related to tariffs on Chinese imports and exports, from what constitutes tax incentives to China's right to hit back at countries that renege on trade agreements.

Beijing has stepped up its trade defense capabilities since President Xi Jinping came to power in 2012, ushering in laws empowering officials with ways of retaliating against countries that take issue with the way China trades by interfering with the movement of goods, data and personnel between those markets.

Rising tensions between China and the United States and European Union have only validated Beijing's belief it needs to consolidate and improve the measures it has at its disposal, analysts say.

"It's like a nuclear weapon: the point of having it is not to use it, but to deter others from using the same against you," said Henry Gao, professor at Singapore Management University.

"You could argue that this is not really necessary, as when China upgraded its Foreign Trade Law in 2004, there were measures on applying retaliatory tariffs," Gao added.

"But I think one point China is trying to make by including this in the new Tariff Law is that this is our prerogative: If you're going to hit us with tariffs, we can do the same."

Growing alarm over Chinese industrial overcapacity flooding the European Union with cheap products is opening a new front in the West's trade war with Beijing, which kicked off with Washington's import tariffs in 2018.

Brussels is currently investigating whether to apply tariffs on Chinese electric vehicles, while Beijing is conducting its own anti-dumping probe into EU brandy.