China draws up plans to hit back at Trump tariffs

Wall Street suffers further sell-off as President’s announcement raises tensions over trade

RENEWED fears of a trade war between China and the US sent Wall Street spiralling lower yesterday as the two powers continued to exchange barbs.

President Donald Trump has declared on social media that China receives special treatment from the World Trade Organisation and it is unfair to the US, raising questions about how useful the multilateral organisation will be as a route for de-escalation in the emerging trade conflict between the two nations.

“China, which is a great economic power, is considered a developing nation within the World Trade Organisation. They therefore get tremendous perks and advantages, especially over the US. Does anybody think this is fair? We were badly represented. The WTO is unfair to US,” Mr Trump tweeted.

His tweet followed a warning from China that it was prepared to retaliate in a trade conflict with the US with “any measures”.

Gao Feng, a Chinese ministry of commerce spokesman, added: “If multilateralism and liberal trade are threatened, the economic globalisation will be ruined and the whole world’s economic recovery will be affected and threatened severely.”

The remarks followed a threat from the US administration to place additional tariffs of $100bn (£71bn) on Chinese goods. Should President Trump follow through and impose these taxes, that would bring the total toll to $150bn worth of Chinese imports.

China has so far positioned itself as a defender of free trade in the row, claiming that it will as far as possible look for resolution via the WTO, the global regulator for trade between countries.

Mr Gao added that should the new $100bn of tariffs be imposed, China had a “fully prepared” plan of retaliation and “will not hesitate to act”.

The form of this retaliation is a major concern for markets. China cannot easily expand the number of goods it targets much further, as it imports less from the US than vice versa.

The US blue-chip Dow Jones index yesterday closed down 572.5 points, or 2.3pc.

David Dollar, Chinese economic expert at the Brookings Institution, said China’s response to US protectionism was being decided at the highest level.

Mr Dollar said: “President Xi Jinping cannot appear weak and there is strong public support for China to take a firm line in response. China also can make life difficult for American firms operating in China.

“I doubt that they would manipulate their currency as part of the response because that could cause problems with other trading partners.

“The US dollar may well appreciate if a full-blown trade war develops because that is the kind of global shock during which investors usually head for the safe haven of the US.”

Beijing could up the level of tariffs from 25pc on the already listed targeted goods. It could also make it hard for US firms to operate in China.

Other options could include selling some of its large stockpile of close to $1.2 trillion in US treasuries. Such action would potentially weaken China’s currency, however.

Mr Gao said that extra tariffs and the trade conflict they could provoke were the US “lifting a rock only to drop it on their feet”.

Acknowledging that the US might be harmed in a trade war, Mr Trump told WABC Radio that it could result in “a little pain”.