Trump announced on Thursday that he would impose a 10% tariff on a further US$300bil in Chinese imports, a move set to hit American consumers more directly than any other in his trade wars so far. The new import taxes, which Trump later said could go “well beyond” 25%, will be imposed beginning Sept 1 on a long list of goods expected to include smartphones, laptop computers and children’s clothing.
The threat to tax practically all US imports from China marks the biggest escalation so far taken by the Trump administration and brings a surprise end to a truce that had only been in place since the president met Xi Jinping, his Chinese counterpart, in Osaka at the end of June. The question of how China will defend its economy and strike back at the US is pressing.
China’s Foreign Minister Wang Yi made the first official response to Trump’s escalation.
“Imposing new tariffs is absolutely not the right solution to trade frictions,” he told a local Chinese television station while attending an Asean meeting in Bangkok.
Japanese benchmarks fell more about 2.5%. South Korean shares hit their lows of the day after Japan took its own trade-restriction move, directed at Korea. Chinese and Hong Kong stocks also slumped.
China’s response to the escalation is complicated by the fact that the Communist Party’s top leadership is likely decamping this week to the seaside resort of Beidaihe for their annual two-week policy enclave.
Officials from Xi downward disappear from public view as they privately debate policy.
Analysts see China now as being less likely to try to match Trump’s tariffs dollar-for-dollar, but instead hunker down.
“Trump’s move to escalate trade war took place right after the latest negotiation in Shanghai, revealing his brutality,” said Shi Yinhong, professor of international relations at Renmin University in Beijing.
“The new tariffs will definitely hamper the momentum of trade talks. But China has been preparing for the worst scenario for a while, as President Xi Jinping called on citizens to join a “new Long March” after the talks broke down in May.”
In a tweet, Trump said China had not lived up to a promise Xi made in Osaka to buy US agricultural goods and to halt illegal exports of fentanyl. The president later told reporters he’s “not concerned at all” about the negative reaction from markets.
“I think they want to try and make a deal with us, but I’m not sure,” Trump said in a Thursday evening rally in Cincinnati. “Until such time that there is a deal, we will be taxing the hell out of China.”
Six people familiar with the discussions said that during meetings with US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin in Shanghai earlier this week the Chinese side had also made no new proposals.
That had left the way out of an impasse in talks over the substance of a deal that the two sides hit in May unclear, which prompted the administration to decide to increase pressure further on Beijing at a White House meeting Thursday.
Trump said there were no plans to reverse a decision made in Osaka to allow more sales by US suppliers of non-sensitive products to blacklisted Chinese telecoms giant Huawei Technologies Co.
Trump in a series of tweets announcing the new tariffs left the door open to further talks.
“We look forward to continuing our positive dialog with China on a comprehensive Trade Deal, and feel that the future between our two countries will be a very bright one!” he said.
Later, speaking to reporters as he departed the White House for the campaign rally, he complained that Xi isn’t “going fast enough.”
Both China and the US said after this week’s talks that their negotiators would regroup in Washington in early September. People close to the administration said they were still planning for those talks to go ahead.
“Assuming Trump’s tweet becomes policy, we’d expect a proportionate reaction from China. That would mean more tariffs on imports from the US We don’t think China would shoot itself in the foot with harassment of US firms or sales of US Treasuries, ” said Tom Orlik and Carl Riccadonna, of Bloomberg Economics
But they also said the president and his advisers had grown increasingly wary of what appeared to be China’s efforts to extend the talks into next year with an eye toward a possible change of administration after the 2020 presidential elections.
That feeling, they said, had only grown since Osaka on the back of China’s failure to live up to its promise to ramp up agricultural purchases and the outcome of the Shanghai meeting appeared to confirm that.
China has insisted that it wants to see all tariffs lifted as part of a deal.
But according to one person familiar with the discussions, Chinese negotiators in Shanghai insisted that levies would have to be lifted before they would deliver on any reforms, something the US has said it would not commit to.
Trump rejected the advice of Mnuchin and ruled out giving Beijing advance notice of the tariffs during a White House meeting shortly before announcing the move in a tweet.
The tariff move drew an immediate angry response from a US business community that has been pushing for Trump to end a trade war that they see as increasingly weighing on the US and global economies. — Bloomberg
Did you find this article insightful?