Trump mulls tariff increase to prod China

Two countries at impasse in trade talks, sources say

WASHINGTON — President Donald Trump’s administration escalated its fight with China on Wednesday, saying Trump is considering raising tariffs on $200 billion worth of Chinese goods to 25 percent from 10 percent, as trade talks between Washington and Beijing remain at a stalemate.

Senior administration officials expressed frustration Wednesday that China has responded to U.S. tariffs with retaliation rather than capitulation.

“We have been very clear about the specific changes China should undertake,” said Robert Lighthizer, the U.S. trade representative. “Regrettably, instead of changing its harmful behavior, China has illegally retaliated against U.S. workers, farmers, ranchers and businesses.”

Senior administration officials said in a briefing with reporters that Trump has directed Lighthizer to consider increasing tariffs on Chinese imports like fish, petroleum, chemicals, handbags and other goods to 25 percent. A final decision on the size and scope of the tariffs is not expected before September.

The effort to further punish China is being led by hard-line advisers to Trump, who see the measure as a way to force Beijing back to the negotiating table on trade. But that approach is once again creating fissures within Trump’s own team, with his Treasury secretary, Steve Mnuchin, adamantly

opposed to ratcheting up the tariffs and Peter Navarro, a key trade adviser, advocating for the higher levies, according to people familiar with the discussions.

Steve Bannon, who left the White House in August, also has been counseling the president to pursue tougher levies, according to people familiar with his thinking.

The potential for a 25 percent tax is being fueled by deep frustration within the Trump administration over its unsuccessful attempts to press China to change its trade practices, as well as by a sharp decline in the value of China’s currency.

Administration officials have been concerned that China may be manipulating commodity prices to harm American farmers and hurting U.S. companies through regulatory practices, for example holding up shipments of agricultural products in customs until they rot.

Since formal talks between Beijing and Washington fell through in May, Trump has doubled down on his threats, saying he is prepared to impose tariffs on all Chinese imports. Beijing has promised to retaliate with its own measures, and both countries have already imposed tariffs on $34 billion worth of each other’s imports.

“China’s position is firm and clear: pressure and blackmail from the U.S. won’t work,” Geng Shuang, the Foreign Ministry’s spokesman, said at a briefing Wednesday in Beijing in response to reports about the 25 percent tariffs. “If the U.S. takes a further and upgraded move, China would definitely retaliate to safeguard our legal rights.”

Trump privately told advisers this week that he was intent on staying the course on punishing China with additional tariffs. Mnuchin has been advising against such a move, preferring to try to engage with his Chinese counterparts to resolve their differences.

But his hand has been weakened by a recent and rapid depreciation in China’s currency, which helps to make Chinese goods cheaper in foreign markets and buoys exports. That has given hard-liners inside and outside the administration an opening to advocate even higher levies.

The Chinese currency fell to a 13-month low against the dollar this week. The move came partly because of market forces, but also because China has been allowing the heavily managed value of its currency, the renminbi, to slide in currency markets in recent weeks. Trump warned China against further depreciation of its currency as part of a flurry of early morning tweets nearly two weeks ago.

The 25 percent tariffs on $200 billion worth of Chinese goods would come in addition to U.S. levies on $34 billion worth of products that are already in place and an additional $16 billion that are scheduled to go into effect soon. The review period for tariffs on the next $16 billion ended Tuesday, but senior administration officials said a decision had not been made yet on when or whether to impose them.

The administration maintains that China has long violated international trade practices, including by stealing U.S. intellectual property. It argues that past administrations have failed to sway China and that the United States must be prepared to take a tough stance in order to change its course.

Congress passed legislation Wednesday that will strengthen national security-related checks on Chinese investment in the United States, a method that the administration says China has used to capture valuable U.S. technology.

The Americans and the Chinese have been carrying out back-channel talks over how to proceed, but both sides still seem hesitant to express much enthusiasm for formal negotiations. At present, the discussion is mostly centered on whether more formal talks should resume.

China has been looking for solutions that would end the trade spat without requiring the country to make policy concessions that might limit the country’s future economic growth, according to people familiar with Chinese economic policymaking, who where not authorized to speak publicly.

While raising tariffs is aimed at hurting China, it is also having an impact on American consumers and businesses that rely on products from China’s factories. Farmers, in particular, have complained that they are bearing the brunt of the trade war as China raises the price on imported soybeans and other agriculture products that it typically buys from farms.

“Increasing the size of the tariffs is merely increasing the harm that will be done,” said Matthew Shay, the president of the National Retail Federation. “Tariffs are an unacceptable gamble with the U.S. economy, and the stakes continue to rise with no end in sight.”

Last week, the Trump administration announced that it would offer farmers up to $12 billion in subsidies to help compensate them for losses incurred as a result of the trade measures. But to offer the same level of aid to other industries that have been affected by retaliation from abroad, the U.S. Chamber of Commerce estimated in an analysis that it would cost the administration an additional $27 billion.

A public hearing about the $200 billion list is scheduled for late this month, when U.S. companies and individuals will be able to tell the U.S. trade representative which products they think should be on or off the list.

With talks to resolve the dispute stalled, Trump is looking to up the ante. He is also betting that the U.S. can wield more leverage because Beijing cannot match the tariffs proposed on $200 billion in Chinese goods. China imported only about $130 billion of products from the U.S. last year.

By comparison, the United States imported more than $500 billion of Chinese goods in 2016.

“The bottom line is the president’s going to continue to hold China responsible for their unfair trade practices,” said White House press secretary Sarah Huckabee Sanders. “This has gone on for long enough, and he’s gonna do something about it.”

Lighthizer