LDN - Business

Trump threatens more China tariffs, Beijing ready to hit back

[April 07, 2018] By Michael Martina and Steve Holland

BEIJING/WASHINGTON (Reuters) - China warned on Friday it was fully prepared to respond with a "fierce counter strike" of fresh trade measures if the United States follows through on President Donald Trump's threat to slap tariffs on an additional $100 billion of Chinese goods.

Trump, in light of what he called China's "unfair retaliation" against earlier U.S. trade actions, had upped the ante on Thursday by ordering U.S. officials to identify extra tariffs, escalating a tit-for-tat confrontation with potentially damaging consequences for the world's two biggest economies.

China's Commerce Ministry spokesman, Gao Feng, calling the U.S. action "extremely mistaken" and unjustified, said the spat was a struggle between unilateralism and multilateralism and that no negotiations were likely in the current circumstances.

"The result of this behavior is to smash your own foot with a stone," Gao told a news briefing in Beijing. "If the United States announces an additional $100 billion list of tariffs, China has already fully prepared, and will not hesitate to immediately make a fierce counter strike."

The dueling trade threats rattled Wall Street on Friday, ending a volatile week with major indexes closing down more than 2 percent on the day. The dollar also fell, while safe havens such as the Japanese Yen and gold futures rose.

The week started with China imposing $3 billion of tariffs on U.S. fruits, nuts, wine and pork, and rapidly escalated to threats that could seriously curtail hundreds of billions of dollars in trade between the world's two largest economies.

While U.S. officials said they were prepared to talk the issues through with China, there was no clear path to negotiations. Both Treasury Secretary Steve Mnuchin and Trump economic advisor Larry Kudlow were on television to promote the idea of talks, with Mnuchin telling CNBC "we are in communication regularly".

Gao's comments came shortly after Trump defended his proposed tariffs, saying the move might cause "a little pain" but the United States would be better off in the long run.

Asked in an interview with New York radio station WABC about the effect on U.S. stock markets, Trump said the market has gone up (since he took office) "so we might lose a little bit of it."

"So we may take a hit and you know what, ultimately we're going to be much stronger for it."

Kudlow told Bloomberg Television Trump and America's top trade official Robert Lighthizer were "thinking about submitting a list of suggestions to the Chinese."

On Wednesday, China unveiled a list of 106 U.S. goods including soybeans, whiskey, frozen beef and aircraft targeted for tariffs, just hours after the Trump administration proposed duties on some 1,300 Chinese industrial, technology, transport and medical products.

Washington called for its initial $50 billion in extra duties after it said an investigation had determined Chinese government policies are designed to transfer U.S. intellectual property to Chinese companies and allow them to seize leadership in key high-technology industries of the future.

China said it was not afraid of a trade war, even though it did not seek one, and accused the United States of provoking the conflict. Gao said comments from U.S. officials about ongoing talks about trade issues were incorrect.

"Under these conditions, the two sides cannot conduct any negotiations on this issue," Gao said, without elaborating.

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President Donald Trump walks as he returns to the White House after a trip to Lewisburg, West Virginia, in Washington D.C., U.S., April 5, 2018. REUTERS/Carlos Barria

Kudlow, who has repeatedly sought to soothe markets with mention of possible talks, told Bloomberg Television there were always ongoing bilateral discussions on trade but that negotiations on tariffs had not begun.

Seeking to tamp down alarm, he told reporters outside the White House, "so nothing's happened. Nothing's been executed ... There's no 'there' there yet, but there will be."

CHINA'S ROLE

While Beijing calls Washington the aggressor and says it is spurring global protectionism, China's trading partners have complained for years that it abuses World Trade Organization rules and propagates unfair policies that lock foreign firms out of some sectors. China has promised repeatedly to open up sectors such as financial services.

President Xi Jinping is expected to unveil reform measures next week and his country's opening up while attending the Boao Forum, China's equivalent of Davos, in the southern island province of Hainan.

So far, U.S. information technology products from mobile phones to personal computers have largely escaped the ire of Beijing, as well as telecoms equipment and aircraft larger than the equivalent of a Boeing 737.

Among sectors most affected by a trade war could be technology, particularly chipmakers. The U.S. semiconductor industry relies on China for about a quarter of its revenue.

It also remains to be seen if the dispute would trigger a nationalistic backlash. When ties between Beijing and Seoul chilled, Chinese tourism to South Korea plummeted and Chinese consumers shunned Made-in-South-Korea products.

On Chinese social media on Friday, among the most searched phrases were "China hasn't grown up afraid" and "China will follow through to the end."

The China Chamber of International Commerce said the Chinese business community would firmly support government efforts to counter "irrational and erroneous" U.S. words and actions, the official Xinhua news agency reported, and urged Washington not to go "further and further down the wrong path."

DAMAGING CONSEQUENCES

Analysts at Oxford Economics, referring to the fact that the tariffs are not yet in effect, said in a note to clients that, "Importantly, these threatened tariffs will be subject to negotiation, and therefore shouldn't be considered as final."

However it added a full-blown trade war "would have a more pronounced effect. The U.S. and China would suffer significant slowdown in real GDP growth – a cumulative loss around 1.0 percentage point." It cut global economic growth to 2.5 percent in 2019 from 3.0 percent in its baseline scenario.

"This is what a trade war looks like, and what we have warned against from the start," said National Retail Federation President and CEO Matthew Shay.

"We are on a dangerous downward spiral and American families will be on the losing end," Shay added in a statement, urging Trump "to stop playing a game of chicken with the U.S. economy."

(Reporting by Tom Daly, Michael Martina and Min Zhang in BEIJING and Steve Holland, David Lawder and Doina Chiacu in WASHINGTON; Additional writing by Ryan Woo, Alex Richardson, Lindsay Dunsmuir and David Chance; Editing by Frances Kerry and James Dalgleish)

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