Trump Dramatically Escalates Emerging Trade War with China

Posted on 06/19/2018 5:52 AM

Trump threatens new tariffs on $200 billion in China shipments; new total of $450 billion

President Trump took the latest step in the emerging trade war with China by dramatically threatening new tariffs on $200 billion in China shipments, up to a total of $450 billion, a sum nearly as large as the total value of goods China sent the U.S. last year, which was $505.6 billion. There is a 60-day comment period on the latest U.S. tranche of tariffs.
     China responded, labeling the move “extreme pressure and blackmail” and noting that, “If the U.S. loses its senses and publishes a new list, China will be forced to take comprehensive measures that are both strong in quantity and gravity and will fight back.”
     Separately, the Senate voted to reinstate tough penalties on ZTE, a Chinese telecommunications company accused of violating American sanctions. The measure would undo an agreement pushed by Trump that would allow ZTE to remain in business in exchange for a $1 billion fine.
     Meanwhile, North Korea’s leader, Kim Jong Un arrived today for his third trip to China since March, a week after his summit meeting with President Trump.



President Donald Trump late Monday took the next step in the emerging trade war with China by dramatically threatening new tariffs on $200 billion in China imports, up to a total of $450 billion, a sum nearly as large as the total value of goods China sent the U.S. last year, which was $505.6 billion.

A 60-day comment period. None of the tariffs announced Monday will take effect until industries and consumers have a chance to make their views known in a 60-day public comment period.

The move followed tariffs applied last week on $50 billion in Chinese shipments to the U.S., designed to punish China for unfair trade practices. Beijing immediately threatened to retaliate with its own equivalent tariffs on U.S. goods. Trump then threatened $100 billion additional tariffs after the Beijing response.

In a statement late Monday, Trump said that he now wants U.S. Trade Representative (USTR) Robert Lighthizer to identify a second tranche of goods imported from China for tariffs of 10%. Should China retaliate to those additional tariffs, Trump promised to escalate even further by placing tariffs on another $200 billion in Chinese goods. “Further action must be taken to encourage China to change its unfair practices, open its market to United States goods, and accept a more balanced trade relationship,” Trump said in the statement (Link).

However, Trump noted his “excellent relationship” with Chinese President Xi Jinping, and said the two would continue working together on many issues. “But the United States will no longer be taken advantage of on trade by China and other countries in the world,” he said.

But China’s Commerce Ministry responded swiftly to Trump’s threat, issuing a statement published shortly after Monday’s announcement, calling the move an example of “extreme pressure and blackmail.” “If the U.S. loses its senses and publishes a new list, China will be forced to take comprehensive measures that are both strong in quantity and gravity and will fight back,” it read. It said China would “have to adopt comprehensive measures combining quantity and quality to make a strong countermeasure.” "The United States initiated a trade war and violated the laws of the market. It did not meet the current development trend of the world, harmed the interests of the people and enterprises of China and the United States, and harmed the interests of the people of the world." The vow of retaliation was reiterated by a spokesman for the Chinese Foreign Ministry, Geng Shuang, at a daily press briefing. “We don’t want a trade war, yet we are not afraid of a trade war,” he said.

Some of the first U.S. tranche of tariffs, aimed at $50 billion in imports from China and designed to punish Beijing for alleged intellectual-property violations and technology theft, will be implemented July 6 and will add 25% to the price of goods at the border. Beijing said Friday it would retaliate in kind by targeting high-value American exports — including farm products, cars and crude oil.

This latest action by China clearly indicates its determination to keep the United States at a permanent and unfair disadvantage,” Trump said, calling Beijing’s response “unacceptable.”

Lighthizer responds. “The initial tariffs that the president asked us to put in place were proportionate and responsive to forced technology transfer and intellectual property theft by the Chinese,” Lighthizer said in a statement Monday, confirming that his office is preparing to identify imports for the new round of tariffs. “It is very unfortunate that instead of eliminating these unfair trading practices China said that it intends to impose unjustified tariffs targeting U.S. workers, farmers, ranchers, and businesses.”

The Trump administration in the initial 25% duties sought to avoid consumer items or other products that could hurt Americans at the checkout counter, and flat-screen televisions were excluded from the finalized tariffs last week. Avoiding such goods would prove harder if the additional tariffs are implemented.

Secretary of State Mike Pompeo echoed his boss’ get-tough strategy. “Chinese leaders over these past few weeks have been claiming openness and globalization, but it’s a joke,” Pompeo said Monday during a speech at the Detroit Economic Club. “Let’s be clear, it’s the most predatory economic government that operates against the rest of the world today. This is a problem that is long overdue in being tackled."

Meanwhile, the Department of Commerce on Monday set duties on aluminum alloy sheet from China. Preliminary duties of 167% on imports of common alloy aluminum sheet from China have set by the Department of Commerce, according to the Aluminum Association. Commerce Secretary Wilbur Ross "self-initiated" the aluminum investigation that brought the duties announced Monday. China exported some $600 million of the product to the U.S. in 2016. The Aluminum Association (AA) welcomed the move, saying China had not played by the rules. "For too long, the Government of China has been unfairly and illegally subsidizing its aluminum industry, leading to massive market overcapacity and challenging producers across the value chain," AA President and CEO Heidi Brock said in a statement. "Today's action by the Commerce Department is exactly the kind of strong, targeted trade enforcement we need in support of the rules-based global trading system." The duties are in addition to preliminary countervailing duties ranging from 31.20% to 113.30% that were set in April.

Many Democratic lawmakers applaud the use of tariffs as a tool to rein in China’s behavior but fault Trump for a “chaotic” policy. Others simply say the Trump and his team have no strategy.

It is not only China. Besides China, duties on U.S. products are already taking place from Mexico and have been announced by the European Union and Canada.

Meanwhile, the Senate in a rebuke to Trump passed a measure reinstating a ban on purchases of U.S. components by Chinese telecommunications company ZTE Corp., a move Trump had unsuccessfully sought to overturn. The measure, part of the annual defense appropriations bill, which passed 85 to 10, ordered the reimposition of the punitive measures imposed on ZTE after the company pleaded guilty to violating U.S. sanctions against North Korea and Iran. Trump had sought to roll back the measures last month as part of a deal with Chinese government leaders, arguing that the punishment against ZTE risked putting the company out of business. The ZTE amendment would automatically reinstate the seven-year prohibition on the company doing business with American firms until Trump has certified to Congress that ZTE has met certain conditions. It also would ban all U.S. government agencies from purchasing or leasing telecommunications equipment and/or services from ZTE, a second Chinese telecommunications firm, Huawei, or any subsidiaries or affiliates of those two companies. Trump’s escalation in tariffs on China could be in part a response to Senate fears that he has been too soft on China in the ZTE case, analysts note.

U.S. business groups responded to the latest Trump actions with alarm. “As we’ve said before, tariffs — at any amount — will not fix the problem of China’s unfair practices. We urge the administration to change course and to instead work with our allies on a focused, sustained strategy," a spokeswoman for the U.S. Chamber of Commerce said.

Retail groups also responded. National Retail Federation President and CEO Matthew Shay called Trump's threat to impose duties on $200 billion worth of additional goods "a reckless escalation."

"This is a global trade war, plain and simple, and the American families will be the ones who suffer most," added Hun Quach, vice president of international trade for the Retail Industry Leaders Association.

U.S. equipment manufacturers said Trump's action was "terrible news" that would effectively wipe out all of the gains the industry has seen from tax reform and regulatory relief. "While the White House is chasing some imaginary trade deficit, it will have very real consequences for the 1.3 million men and women of our industry. We should be creating more jobs, not wiping them out," said Kip Eideberg, vice President for public affairs and advocacy at the Association of Equipment Manufacturers.

Perspective. The rapid tit-for-tat actions have left little time for negotiations that could defuse tensions between the two countries. A third round of tariffs would bring the total imports from China subject to U.S. tariffs to $450 billion, almost as much as the $505.6 billion in goods that the U.S. imported from China last year. By comparison, China only imported $130.4 billion in American goods last year, giving Beijing less room to target trade volumes coming from the U.S. than Trump does in shipments from China. However, U.S. companies had $92.5 billion worth of investments in China as of 2016, many of which could face retaliation by Chinese regulators if Beijing is looking for ways to exert pressure on the United States.

Trump seems to be counting on the fact that China will soon run out of room to retaliate with its own tariffs on U.S. exports,” said Eswar Prasad, a trade expert at Cornell University. “This could prove to be a miscalculation since China has other effective levers it can use in a trade war, including disruptions of American businesses’ sales operations and their supply chains that run through China.”

The move sent Asian markets sliding to new lows with Shanghai closing down 3.78%, its biggest drop in two years, and Shenzhen down 5.31%. Hong Kong’s Hang Seng Index (HSI) closed down 2.76%, while Japan’s Nikkei lost 1.77%.

While Trump’s trade agenda does create some uncertainty for Americans, the U.S. economy is in a position to handle it and will end up with more fair trade, one of Trump’s top economic advisers said Monday. “I think that we’re going from an old world to a new world. We’re going to get to that new world that is a big positive change in trade policy. But that uncertainty over it right now is definitely palpable,” Kevin Hassett, chairman of the Council of Economic Advisers, said in an interview with CNBC. “If right in the middle of the financial crisis we added some uncertainty over exactly how these negotiations are going to work out, then it would be pretty harmful then,” Hassett added. “But right now, the economy has a lot of forward momentum.”


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