China blames U.S. for staggering trade surplus as tariffs loom

[March 22, 2018]  By Ben Blanchard and Brenda Goh

BEIJING/SHANGHAI (Reuters) - China blamed U.S. export restrictions for its record trade surplus with the United States, but expressed hope that a solution can be found to settle trade issues between the world's two biggest economies as U.S. tariffs loom.

Beijing was bracing on Thursday for an announcement from U.S. President Donald Trump of tariffs of as much as $60 billion on Chinese imports, raising fears that the two countries could be sliding towards a trade war.

The tariffs will be imposed under Section 301 of the 1974 U.S. Trade Act, focusing on Chinese high-tech goods. Trump says Beijing has forced U.S. firms to transfer their intellectual property to China as a cost of doing business there.

Washington is also pressing China to reduce its staggering $375 billion trade surplus with the United States by $100 billion.

Chinese Foreign Ministry spokeswoman Hua Chunying said it was unfair to throw around criticism about unfair trade if the United States won't sell to China what it wants to buy, referring to U.S. export controls on some high-tech products.

"How many soybeans should China buy that are equal to one Boeing aircraft? Or, if China buys a certain number of Boeing aircraft should the U.S. buy an equal number of C919s?" Hua said, mentioning China's new self-developed passenger jet.

However, China still hopes it can hold constructive talks with the United States in a spirit of mutual respect to seek a win-win solution, she added.

U.S. agricultural exports to China stood at $19.6 billion last year, with soybean shipments accounting for $12.4 billion. Chinese penalties on U.S. soybeans will especially hurt Iowa, the state that backed Trump in the 2016 presidential elections and is home to U.S. Ambassador to China Terry Branstad.

Some Americans believe that China can't find a substitute for U.S. soybeans, but that's an "arrogant and naive" idea, China's Global Times said in an editorial on Thursday.

The widely read state-run tabloid is run by the ruling Communist Party's official People's Daily, though its stance does not necessarily equate with Chinese government policy.

Boeing <BA.N> jets have also been often cited as a potential target by China, which has been developing the C919 as part of its civil aerospace ambitions.

The U.S. plane manufacturer, which has the biggest market share in China, said last year it expects China to buy more than 7,000 Boeing jets worth $1.1 trillion over the 20 years to 2036.

"WON'T SIT IDLY BY"

"With regards to the Section 301 investigation, China has expressed its position on many occasions that we resolutely oppose this type of unilateral and protectionist action by the U.S.," the Commerce Ministry said on Thursday.

"China will not sit idly by while legitimate rights and interests are hurt. We must take all necessary measures to firmly defend our rights and interests."

U.S. Trade Representative Robert Lighthizer said on Wednesday the tariffs would target China's high-technology sector and there could also be restrictions on Chinese investments in the United States.

Other sectors like apparel could also be hit.

Trump is expected to sign a memo on the tariffs at 1230 p.m. EDT (1630 GMT).

Jacob Parker, Beijing-based vice president of China operations at the U.S.-China Business Council, said the group wanted to know what action the U.S. administration wants China to take to improve protection for intellectual property, and over forced technology transfer.

"It's really important for them to lay that out so that we have a strategy going forward and it's not just tariffs for tariffs' sake."

Containers are seen at the Yangshan Deep Water Port, part of the Shanghai Free Trade Zone, in Shanghai, China September 24, 2016. REUTERS/Aly Song/File Photo

Parker said China needs to adopt a tougher deterrent against counterfeiting and IP theft, and do away with joint venture and business licensing requirements that can be used to mandate technology transfers to gain market access.

"At the moment, it's very difficult for the two sides to sit down and talk because the Trump administration seems determined to go this way regardless of China's manoeuvres," said He Weiwen, a senior fellow at the Center for China and Globalization, a Beijing-based think tank.

Trade wars are "good" and "easy to win", said Trump, having made election campaign promises to get tough with China over its huge surplus with the United States.

On Wednesday, the World Trade Organization ruled that Washington had not fully complied with a 2014 ruling against its anti-subsidy tariffs on various Chinese products ranging from solar panels to wind towers, giving Beijing a partial victory over the U.S. in the case.

LIMITED IMPACT

The measures planned by Washington so far are expected to have a limited impact on China's economy, which is far less dependent on exports than it was a decade ago.

"Most Chinese corporates seems to be quite resilient against a potential trade war given the high share of domestic revenue," said Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis. "However, there are certain sectors which will be relatively more affected, such as information technology and consumer durables."

(For a graphic on U.S. imports from China click http://tmsnrt.rs/2FMsz1Q)

In a possible sign of what is to come, Best Buy Co Inc <BBY.N>, the largest U.S. consumer electronics retailer, has decided to stop buying smartphones from Chinese telecom equipment maker Huawei, a source familiar with the matter told Reuters.

Moody's Investors Service said the impact would be far greater if the United States significantly expands tariffs and throws in broad-ranging protectionist measures.

Sectors with a large, direct exposure to the U.S. market, Moody's said, included cork and wood products, furniture, office machines, household appliances, electrical equipment, road vehicles, telecommunications equipment, electrical machinery, apparel and footwear, animal oils and fats.

Analysts said U.S. companies like Boeing, as well as deals which require Chinese approval, could also become caught in the crossfire should a trade war break out.

Boeing this week announced a $3.6 billion order from China Southern Airlines Co Ltd's <600029.SS> subsidiary Xiamen Airlines. Chip giant Qualcomm Inc <QCOM.O> is still waiting for Chinese approval for its proposed $44 billion acquisition of NXP Semiconductors NV <NXPI.O>.

U.S. electric carmaker Tesla Inc <TSLA.O> is in long-running talks with Shanghai authorities to build a local manufacturing plant in the city.

(Reporting by Brenda Goh in SHANGHAI and Ben Blanchard in BEIJING; Additional reporting by Elias Glenn in BEIJING; Writing by Ryan Woo; Editing by Simon Cameron-Moore and Nick Macfie)

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