US China Conflict
U.S.-China onflict hurting U.S. farmers.

China vows to retaliate after Trump levies another tariff

Latest U.S. tariff is 10% on about $200 billion worth of goods; China says it will put tariffs on $60 billion worth of U.S. goods in response.

by Enda Curran, Andrew Mayeda and Jenny Leonard

China vowed to retaliate after the U.S. said it will impose a 10% tariff on about $200 billion in Chinese goods next week and more than double the rate in 2019.

The statement from the Ministry of Commerce didn’t note specific actions, though China has previously said it would respond with levies on $60 billion worth of U.S. goods. Such a move risks deepening the standoff even further, with President Donald Trump saying in a statement on Monday the U.S. will immediately pursue additional tariffs on about $267 billion of Chinese imports if Beijing hits back.

"The U.S. side insisted on imposing tariffs, which has brought new uncertainty to the bilateral negotiations," the commerce ministry statement said. "We hope that the U.S. side will recognize the negative consequences of such acts and take convincing measures to correct them in a timely manner."

The foreign ministry said in a separate briefing that it would announce countermeasures at an appropriate time without elaborating.

In a sign of how Chinese business are girding for a protracted dispute, Jack Ma, executive chairman of Internet giant Alibaba Group Holding Ltd., said the trade war could last for 20 years. It is "easy to launch a war but difficult to stop a war," he said at the company’s annual investor day in Hangzhou. 

Global markets reacted to the latest trade war escalation with relative calm. Chinese stocks gained amid expectations the government will take steps to offset the negative effect of tariffs.

Brave Face 

On a panel at meetings of the World Economic Forum in Tianjin, Fang Xinghai, vice chairman of China’s Securities Regulatory Commission, said China won’t be pressured by Trump’s trade tactics and talked up the economy’s strength. While he estimated a negative hit to China’s GDP growth of about 0.7 percentage points if the U.S. goes ahead with tariffs on all China exports to the U.S., Fang also said he’s confident that relations between both countries can normalize and said he hopes both sides can negotiate on an equal basis.

“It is good for the U.S. economy to have good relations with China and good for the rest of the world,” he said. “President Trump, as shown in the North Korean affair, is able to revert himself very quickly. I think we have to take that into account.”

Trade War Impact on China 

Announcing its tariffs, the U.S. administration said it is giving American businesses a chance to adjust and look for alternative supply chains by delaying an increase to 25% on Jan. 1 for the $200 billion batch of Chinese goods, according to two senior administration officials who briefed reporters on Monday. The 10% tariff will take effect on Sept. 24.

“For months, we have urged China to change these unfair practices, and give fair and reciprocal treatment to American companies,” Trump said. “We have been very clear about the type of changes that need to be made, and we have given China every opportunity to treat us more fairly. But, so far, China has been unwilling to change its practices.”

Smart Watches, Playpens

Smart watches and Bluetooth devices were removed from the tariff list, along with bicycle helmets, high chairs, children’s car seats, playpens and certain industrial chemicals. They were among 300 tariff lines scrubbed from the preliminary list released in July, according to one of the officials. No items were added, the officials said.

"We were trying to do things that were least intrusive on the consumer," Commerce Secretary Wilbur Ross said Tuesday on CNBC. "We really went item-by-item trying to figure out what would accomplish the punitive purpose on China and yet with the least disruption in the U.S." 

Trump continues to ratchet up pressure on Beijing to change its trade practices. Business leaders are warning the high-stakes strategy could upend their supply chains and raise costs, as economists worry Trump’s tactics could derail the broadest global upswing in years.

The U.S. Chamber of Commerce, retailers, agricultural groups and some members of Trump’s own Republican party have spoken out against his tariff campaign. It’s also divided his advisers between China hawks like U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, a former Wall Street banker who is seeking a trade deal. 

“It appears that the administration responded to some industry concerns, but for many American businesses and consumers this still represents a rapid acceleration of costs and much higher uncertainty,” said Rufus Yerxa, president of the National Foreign Trade Council. “Business hates uncertainty. They’d rather have an imperfect trading relationship than this much chaos.”

What Our Economists Say...

“The U.S.-China trade war is shaping up to be a long confrontation. In our view, piling pressure on China is unlikely to result in concessions. A strategic misstep by the U.S. risks further escalating the tariff war, which would add to the drag on growth -- with larger implications for Asia’s supply chains.”-- Chang Shu, Bloomberg EconomicsFor more, see our  China React

The administration earlier this month floated talks led by Mnuchin, with Liu He expected to lead the Beijing delegation.

"The best way forward is an imminent return to results-oriented negotiations, William Zarit, chairman of the American Chamber of Commerce in China, said in a statement. “However, U.S. companies in China have faced real and legitimate concerns for many years and so any future discussions must be based on fair and reciprocal treatment and address the need for sustainable structural reforms."

With the latest tariff escalation, American consumers could start feeling the cost in everyday goods. It brings all Chinese imports subject to added tariffs to $250 billion, roughly half of China’s shipments to the U.S. last year. The U.S. administration in July and August already imposed 25% tariffs on $50 billion on Chinese goods, sparking in-kind retaliation. 

Additional tariffs on $267 billion of imports from China would push the cumulative total beyond the amount of goods the U.S. bought from the Asian nation last year.

Officials in the region warned about the trade war’s impact. Japan’s Finance Minister Taro Aso said it will impact other countries while Australia’s central bank warned that "significant tensions” around trade policy are a “material risk” to the global outlook, it said in minutes of the September policy meeting released Tuesday in Sydney. 

"We’re looking at quite treacherous waters here which could considerably destabilize global economic confidence and threaten a future recession," former European trade commissioner Peter Mandelson told Bloomberg Television. "That’s how serious the stakes are now."

--With assistance from Jennifer Jacobs, Toluse Olorunnipa, Saleha Mohsin, Haze Fan, Yinan Zhao, Dandan Li and Miao Han.

To contact the reporters on this story: Enda Curran in Hong Kong at [email protected] ;Andrew Mayeda in Washington at [email protected] ;Jenny Leonard in Washington at [email protected] 

To contact the editors responsible for this story: Malcolm Scott at [email protected] ;Brendan Murray at [email protected] ;Alex Wayne at [email protected] Sarah McGregor

© 2018 Bloomberg L.P

 

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