China retaliates against U.S. tariffs, escalates trade war
BEIJING — Who will blink first?
China on Wednesday matched dollar for dollar the Trump administration's plan to slap tariffs on $50 billion of imported Chinese goods, issuing its own list of U.S. products of comparable value that would be subject to hefty duties should the White House follow through with its tough trade sanctions.
Beijing's swift and broad retaliatory response at first seemed to confirm fears that the world's two largest economies were hurtling toward a trade war that would be costly for consumers and companies, and damage the global economy.
Anxious U.S. businesses pleaded for cooler heads, and investors panicked. But after sinking sharply when markets opened Wednesday, U.S. stocks not only recovered, but the Dow ended the day up 231 points.
The rebound followed assurances by White House officials that despite President Donald Trump's sharp rhetoric and threats, chances are good that the tit-for-tat trade salvos will end in settlement rather than much further escalation.
Though Trump tweeted Wednesday that the United States “can't lose” a trade war with China because “that war was lost many years ago,” two White House officials, Commerce Secretary Wilbur Ross and chief economic adviser Larry Kudlow, tamped down fears and said it was still possible that the threatened tariffs would never take effect if talks yield a compromise. Kudlow called it the “early stages of a process” of negotiations that will end with “a pot of gold.”
But there is no quick or cosmetic solution to the deep-seated grievances at the heart of dispute. Trump wants fundamental changes from Beijing — to reduce its fat trade surplus with the U.S., to open up Chinese markets and to alter policies and behavior that officials say have hurt American intellectual property and innovation.
The trade conflict now has two active fronts. On March 8, the Trump administration announced global steel and aluminum tariffs to protect U.S. producers, exempting many nations but not China. Beijing shot back by levying 15 percent to 25 percent tariffs on $3 billion worth of American goods, including scrap aluminum, frozen pork, dried fruits, nuts and wine.
The second battle, involving U.S. claims of Chinese theft of trade secrets and forced technology transfer, began on March 22 with Trump's order to trade officials to draw up a list of Chinese products to hit with 25 percent tariffs. Those import taxes on some 1,300 items, announced Tuesday evening, target a wide array of Chinese technology, transport and medical products, including flat-screen TVs, air-combat simulators, bookbinding machines, centrifuges, malaria test kits, Xray machine parts and flamethrowers.
Only hours later, China responded by announcing plans to impose a 25 percent tariff on 106 U.S. products, also with a total value of about $50 billion. While the U.S. tariff tally is long and meant to maximize the hit to China's technology production and minimize the pain to American consumers — footwear and many other made-in-China household items were excluded — China's list is compact and aimed at hitting America's political gut, particularly Trump country.
Besides items like aircraft, cotton, beef and orange juice, Beijing targeted American soybeans, whose producers count on China for more than half of their total foreign sales. In 2016, China purchased $14 billion worth of U.S. soybeans, many produced in states Trump won.
It's also no accident that cranberries and vehicles including motorcycles are on the list; they are made in Republican House Speaker Paul D. Ryan's home state of Wisconsin.
Trump won eight of the U.S.’s top 10 soy-exporting states in the 2016 election, based on U.S. Department of Agriculture export data. Wisconsin and Michigan, both crucial swing states in the election, are also major soybean exporters. Analysts say China could make up some of the shortfall by importing from Brazil.
Tobacco and whiskey, also on China's list, are prime products of Kentucky, the home of GOP Senate Majority Leader Mitch McConnell, who has already expressed reservations about Trump's tariff policies. Orange juice is largely produced in Florida, a key swing state.
“President Trump's trade war will hit California farmers hard,” Sen. Dianne Feinstein, D-Calif., wrote on Twitter. “$2 billion worth of CA exports — including all exported almonds, walnuts, raisins, plums, grapes, kiwis, dates and figs — will now be subject to a 15 percent tariff when exported to China. How does that protect American jobs?”
Even so, with the midterm election looming, analysts say there may be more incentive for politicians to keep bashing China and intensifying or dragging out the trade fight.
“Getting tough with China is a good political move. I don't see how many want to be on the side of China,” said Ed Miller, a Washington analyst at Raymond James & Associates, a financial services firm. What that means, he added, is that things could get ratcheted up.
On Wednesday, the U.S. and China traded tough words. In a briefing with reporters, a U.S. Trade Representative official called the Chinese retaliatory tariff plan baseless, and accused Beijing of employing the tactic in “an effort to intimidate us, for us to back down.”
The official said there are ongoing talks with the Chinese, but he declined to say specifically what the U.S. wants from China in concessions to call off the new tariffs, which could take effect as early as June after a period of public comment and hearing.
China, for its part, accused the U.S. of breaking the rules of the World Trade Organization with its planned tariffs. “America's measures ... have seriously violated China's legal rights,” China's Finance Ministry said in an online statement.