Beijing’s Initial Reaction to Metals Tariffs? Cautious

President Donald Trump’s decision to impose broad tariffs in the coming days on imports of steel and aluminum from around the world has drawn condemnation from the European Union, Canada and Brazil. But the intended target of Trump’s action, China, has been fairly cautious.

China’s commerce and foreign ministries have publicly criticized the decision, and the Commerce Ministry raised the possibility Friday that China might retaliate. But the threat was carefully calibrated to say that any retaliation would be based on the direct effects of the United States’ actions on China’s own interests.

Those direct effects could be limited. China represents only a little more than 2 percent of U.S. steel imports, and just 0.1 percent of China’s overall steel production. China also exports only a very small share of its raw aluminum production to the United States.

China uses most of its aluminum to manufacture everything from auto parts to solar panel frames, although many of these are then exported all over the world. The Trump administration tariffs are expected to focus on shipments of raw or barely processed metal, although the technical details of the tariffs will not be released for a few more days.

The broader message from Beijing since Trump’s announcement Thursday has been that Chinese officials still hope to keep talking to the United States and head off broader disputes over trade and investment.

Liu He, a Chinese Politburo member who has clearly emerged this winter as President Xi Jinping’s top personal adviser on economic policy, met at length with senior administration officials in Washington on Thursday and Friday. Those talks are being portrayed in China as productive even though Trump made his tariff announcement on the first full day of Liu’s visit and even though Trump himself did not meet with Liu.

“This dialogue is very useful, constructive and helpful,” said a person familiar with Chinese policymaking, adding that on the metals tariffs: “We are quite prudent. China so far did not take any harsh action.”

Beijing’s focus has been on two much broader issues. Chinese officials want to maintain the broader trade relationship, which produced a record $375 billion trade surplus for China last year and created millions of jobs in China while providing huge volumes of inexpensive goods for U.S. consumers. And Chinese officials want to preserve the overall ability of Chinese companies to continue investing in the United States.

Those investments have allowed China to acquire considerable technology and manufacturing expertise that might be hard to develop independently. The Trump administration has been working with senior members of Congress on legislation, strongly opposed by Beijing, that would considerably tighten scrutiny of Chinese investments in the United States.

Trump and Robert Lighthizer, his U.S. trade representative, have also focused on shrinking the bilateral trade deficit. While previous administrations have put their efforts into trying to open China’s markets to greater exports, with limited success, Trump administration officials have voiced a much greater willingness to limit U.S. imports of Chinese goods.

The trip by Liu, who accepted an open-ended invitation previously issued by U.S. officials, showed that Beijing remains intent on maintaining the existing trade and investment relationship. Liu scheduled the trip only a few days in advance and without a fixed schedule of meetings with Trump and other officials.

Whether Trump should be personally involved in open-ended trade talks has been the subject of some disagreement within the administration. Brushing aside Chinese suggestions of last-minute talks with him may be a form of increasing pressure on China for concessions.

While Liu joined the Communist Party’s Politburo in October, he is not yet a top-level government official, although he is widely expected to be named a vice premier this month. So there was no clear indication from diplomatic protocol that the two men should meet.

Economists inside and outside of China generally agree that the steel and aluminum tariffs will be inconsequential to China unless they lead to broader trade restrictions.

“Damage to the Chinese economy from these new tariffs will be trivial,” said Andy Rothman, an investment strategist and China analyst at Matthews International Capital Management, a San Francisco money management firm specializing in Asia.

Administration officials blame chronic global overcapacity in both steel and aluminum manufacturing on China’s many state-owned enterprises in steel and aluminum, as well as the many direct and indirect government subsidies these enterprises receive.

That overcapacity has contributed to job losses and lackluster sales for steel and aluminum producers around the world, not just in the United States. But addressing that overcapacity is difficult.

Most of China’s steel and aluminum exports go to countries other than the United States, and much of it is processed into other goods before it ever leaves China. But the huge quantity of China’s production and exports has nonetheless caused a cascade effect elsewhere.

Countries like Canada, which have lost export markets in East Asia and the developing world to low-cost metals from China, have become dependent on exporting to the United States. These countries could be hit hard by the Trump administration’s tariffs, depending on how the rules of the tariffs are written in the coming days.