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Trump Ramps Up Tariff Pressure With $200 Billion China Hit

Sept. 18, 2018
U.S. to impose 10% duty on Sept. 24, rising to 25% next year.

The Trump administration will impose a 10% tariff on about $200 billion in Chinese goods next week and more than double the rate in 2019, deepening what’s shaping up to be a prolonged trade war between the world’s two biggest economies.

If Beijing retaliates against U.S. farmers and industry -- as it has previously vowed -- the U.S. will immediately pursue further tariffs on about $267 billion of Chinese imports, President Donald Trump said in a statement Monday.

Vice Premier Liu He, President Xi Jinping’s top economic adviser, is set to convene a meeting in Beijing on Tuesday morning to discuss the government’s response, according to a person briefed on the matter. 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.

Reaction in Chinese financial markets was muted. The Shanghai Composite Index was little changed after closing at its lowest level in almost four years on Monday. The yuan slipped and S&P futures were lower.

China has previously said it would retaliate against the $200 billion round of tariffs by imposing duties on $60 billion of U.S. goods ranging from liquefied natural gas to aircraft.

The Trump administration is giving American businesses a chance to adjust and look for alternative supply chains by delaying an increase of the tariff 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 target list released in July, according to one of the officials. No items were added, the officials said.

Trump continues to ratchet up pressure on Beijing to change its trade practices even as he floats the idea of talks. 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.”

The decision throws into doubt efforts to reach a diplomatic breakthrough in the conflict. China would reject new trade talks if Trump moved ahead with the next round of tariffs on Chinese products, two people familiar with the matter said earlier on Monday.

The administration earlier this month floated the idea of talks led by Mnuchin, with Liu expected to lead the Beijing delegation. Washington remains open to negotiations, but China must show it’s seriously willing to make systemic economic changes, the senior administration officials said on Monday.

"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 Trump administration in July and August already imposed 25 percent 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.

Economists at Goldman Sachs AG estimate that while the direct effects of the tariffs on Chinese export volumes and GDP would be low, the main near-term impact will be on business sentiment and confidence.

Working Out

Trump told reporters earlier on Monday his impression is that Beijing wants to talk about a deal, and that he thinks “it’s going to work out very well with China.”

Officials from both countries have met four times for formal talks, most recently in August, when Treasury’s undersecretary for international affairs, David Malpass, led discussions in Washington with Chinese Vice Minister Wang Shouwen.

White House economic adviser Larry Kudlow has indicated that Trump could be willing to meet face-to-face with Xi to smooth over trade tensions at the United Nations General Assembly later this month or at the Group of 20 nations leaders’ summit in Argentina from Nov. 30-Dec. 1.

The White House has sought to pressure Beijing to reduce its trade surplus with the U.S. and protect intellectual property rights of American companies, which it says are abused in China.

The administration revised the list of goods that will be hit by tariffs following a commentary period and public hearings last month.

By Andrew Mayeda, Jenny Leonard and Enda Curran

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Licensed content from Bloomberg, copyright 2016.

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