Trade conflict brewing
WASHINGTON» President Donald Trump embarked Thursday on the sharpest trade confrontation with China in nearly a quartercentury, moving toward imposing tariffs on $60 billion in Chinese goods and limiting China’s freedom to invest in the U.S. technology industry.
The Chinese government fired back hours later, threatening to hit $3 billion in U.S. goods with tariffs. Trump’s announcement was “typical unilateralism and protectionism,” China’s Commerce Ministry said in a statement, and it had set a “very bad precedent.”
“China does not want to fight a trade war, but it is absolutely not afraid of a trade war,” it said in a statement issued Friday morning in Beijing. “We are confident and capable of meeting any challenge. It is hoped that the U.S. side will be able to make a swift decision and not to drag bilateral economic and trade relations into danger.”
Trump’s actions — which sent stocks to their biggest one-day drop in six weeks — followed a government finding that China had treated U.S. companies unfairly by coercing them into surrendering trade secrets for market access.
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“We’re doing things for this country that should have been done for many, many years,” the president said at the White House.
Trump directed U.S. Trade Representative Robert Lighthizer to propose within 15 days tariff increases designed to compensate the United States for lost profits and jobs. After a comment period, the list, targeting Chinese products that benefited from U.S. technology, will be made public.
But even as he confronted China over technology, Trump weakened a new tariff meant to protect U.S. production of industrial metals, potentially exempting the European Union, Brazil and other countries accounting for two-thirds of steel imports and more than half of foreign-made aluminum.
By challenging China, Trump rejected the approach of his Republican and Democratic predecessors, gambling that China will bend before he does. “We don’t know how this is going to turn out,” said Scott Kennedy, director of the project on Chinese business at the Center for Strategic and International Studies. “It could be resolved in a few months, or it could spiral out of control into a broader strategic rivalry.”
Early reviews were not good. On Wall Street, the benchmark Dow Jones industrial average plunged more than 700 points, or almost 3 percent, as investors blanched at the prospect of a trade war between the world’s two largest economies.
“There’s a lot of concern about this administration’s shoot-first approach,” said Josh Bolten, president of the Business Roundtable. “The victims of the actions that the administration is proposing to take are principally Americans.”
Hours after Trump’s announcement, China’s commerce ministry gave the first indication of potential targets for retaliation, saying it had compiled a list of 120 products worth nearly $1 billion, including fresh fruit and wine, upon which it would impose a 15 percent tariff if the two countries fail to resolve their trade differences “within a stipulated time.”
The department did not specify a deadline and said that a 25 percent tariffs on other goods, including pork and aluminum, could be imposed “after further evaluating the impact of U.S. measures on China.”
Trump is betting that disrupting the traditional U.S. approach to China will yield a better commercial bargain for American businesses and workers than the status quo that he blames for hollowing out American industry.
Among U.S. politicians and business leaders, there is broad agreement that China has violated U.S. intellectual property rights through restrictive licensing arrangements in China and outright cybertheft in the United States.
But Thursday’s actions threaten to unravel global supply chains, increase costs for consumers and open the door to Chinese retaliation against U.S. farmers and businesses.
“The biggest and most powerful American companies are stuck in the middle,” said James McGregor, APCO Worldwide’s chairman for greater China. “They’re schizophrenic now. They don’t want today’s business to be eliminated. But they know China’s plan for tomorrow is to eliminate them in the Chinese market and then take them on globally.”
At $60 billion in affected products, Trump’s China actions carry a bigger punch than the tariffs on $46 billion in steel and aluminum imports that he announced March 8.
The impact of those earlier levies may shrink further: Lighthizer told the Senate Finance Committee on Thursday that products from the European Union, Australia, Argentina, South Korea and Brazil will not be affected when the tariffs go into effect Friday while negotiations over potential exemptions continue.
Trump already had exempted Canada and Mexico from the import levies for the duration of talks aimed at renegotiating the North American Free Trade Agreement.
The United States last adopted this sort of uncompromising approach in a 1995 dispute over intellectual property rights. China ultimately acceded to U.S. demands, but today its economy is almost 17 times as big, making it less vulnerable to American pressure.
A Sino-U.S. trade war would affect economies that account for roughly 40 percent of global output, which explains the mounting apprehension on Wall Street.
“Trump’s economics team blew it,” economist Chris Rupkey of MUFG Union Bank wrote in a research note. “Tariffs mean a trade war, and the news has the world’s investors running for the exits.”
The president blamed China for the loss of 60,000 factories and 6 million jobs, a number that most economists say blends the impact on U.S. employment of Chinese competition and automation.
Trump said that unfair Chinese trade practices are responsible for the yawning U.S. trade deficit with China, which has reached a record $375 billion on his watch.