Politico

US China Trade: China to Retaliate on $60B in U.S. Goods, Defying Trump’s Warning

China is readying to fire the next salvo in the escalating trade conflict with the United States, announcing on Monday it will raise tariffs on $60 billion in U.S. goods at the start of next month.

China’s Ministry of Finance said it will impose additional tariffs ranging from 5 percent to 25 percent on the $60 billion in American imports. Those will be on top of duties that are already in place in response to Trump‘s tariffs last year. The announcement marks the latest development in a growing tit-for-tat conflict between the two economic giants and came just after President Donald Trump had warned China against retaliating.

Since hiking tariffs on $200 billion in Chinese goods late last week, Trump has been publicly warning Beijing not to hit back, saying it “will only get worse” for the country if it takes further action.

Beijing had previously pledged to take “necessary countermeasures” but had not made a move to do so until Monday’s announcement.

“I say openly to President Xi & all of my many friends in China that China will be hurt very badly if you don’t make a deal because companies will be forced to leave China for other countries,” Trump said in a tweet early Monday, prior to Beijing’s announcement. “Too expensive to buy in China. You had a great deal, almost completed, & you backed out!”

The two sides have been hurtling toward an increase in tensions since Beijing earlier this month “reneged” on a number of commitments it had previously agreed to in negotiations, according to U.S. officials. A delegation of Chinese negotiators traveled to Washington late last week to try to break the impasse, but talks ended early Friday without any resolution.

Negotiations are expected to continue among high-level officials in the coming weeks. Chinese officials have invited U.S. Trade Representative Robert Lighthizer to Beijing, and probably Treasury Secretary Steven Mnuchin, but there are “no concrete, definite plans yet,” White House economic adviser Larry Kudlow said on Sunday.

There’s also a “strong possibility” that Trump and Xi could meet in Japan at the G-20 meeting next month to continue negotiations, Kudlow added.

The escalating tensions are rattling the markets and forcing companies to start paying more for their imports. The Dow Jones Industrial Average was down more than 600 points, or 2.4 percent, by noon.

The broader Standard & Poor’s index of 500 major stocks was similarly down about 2.4 percent Monday.

The drop reflects some of the concern American companies are feeling about the prospect of prolonged trade tensions and higher tariffs.

Goldman Sachs wrote in a new research note over the weekend that the cost of penalties imposed so far under the Trump administration has fallen “entirely” on U.S. businesses and households. It forecast that a further increase in trade tensions could lead to a 0.4 percent hit to GDP.

Some in the Trump administration have begun to acknowledge that protracted trade conflict would hurt the U.S. as well as China. Kudlow — who is considered a free-trader within the Trump administration — conceded in a Fox News interview on Sunday that American businesses and consumers will suffer because of the increase in tariffs.

“In fact, both sides will pay,” Kudlow said. “Both sides will suffer on this.”

That assessment matches what most mainstream economists believe to be the case but stands in stark contrast to Trump’s own views, which are centered on the idea that duties mean China will pay more money directly into the U.S. Treasury.

“Their [sic] is no reason for the U.S. Consumer to pay the Tariffs,” Trump wrote on Twitter Monday.

In reality, the tariffs are taxes paid by importers, such as U.S. companies, which bring in products from China. Those costs are typically passed on to consumers in the form of higher prices, which can drive down demand for Chinese imports.

In his flurry of tweets Monday morning, Trump went on to say that U.S. companies worried about the tariffs could simply avoid them by purchasing their goods from countries not subject to the steep tariffs levied by his administration or by shifting their production to the U.S.

“Also, the Tariffs can be completely avoided if you by from a non-Tariffed Country,” Trump wrote. “Or you buy the product inside the USA (the best idea). That’s Zero Tariffs.”

But companies that do import parts from China often do so for a variety of reasons, including that the goods might not be available elsewhere or would be far more expensive. Rerouting supply chains to avoid purchasing from China is also a costly and time-consuming endeavor that could also prompt some companies to raise prices to offset the costs.

Beijing could ultimately retaliate against the U.S. with more than just tariffs. Hu Xijin, editor-in-chief of Chinese state media tabloid Global Times, said Monday that China could “stop purchasing U.S. agricultural products and energy, reduce Boeing orders and restrict U.S. service trade with China,” among other options.

Still, Trump has sought to project optimism in the face of this latest salvo with China, touting on Monday the “unexpectedly good first quarter 3.2% GDP” that he attributed to the China tariffs.

“Some people just don’t get it!” he added.

Trump also asserted that Beijing was aware of the strong negotiating position he said the U.S. is in, arguing that the threat of moving to manufacture out of the country is “why China wants to make a deal so badly!”

“There will be nobody left in China to do business with. Very bad for China, very good for the USA!” he said.

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