Business

U.S. and China Expand Trade War as Beijing Vows to Match Trump’s Tariffs

Posted June 15, 2018 6:46 p.m. EDT

WASHINGTON — The Trump administration said Friday it would move ahead with tariffs on $50 billion of Chinese products, drawing retaliation from Beijing and escalating a trade war between the world’s two largest economies.

President Donald Trump’s decision to impose the penalties is the latest twist by a White House that has vacillated between taking a tough stance on Chinese trade practices and declaring that the trade war was “on hold.” It comes after the president has ignited trade spats on numerous fronts, including levying tariffs on metal imported from allies and adversaries around the globe and sparring with Canada and Mexico over the future of the North American Free Trade Agreement.

Tariffs of 25 percent on roughly $34 billion of Chinese products — drawn from a list the administration published in April and vetted through a series of hearings in mid-May — will go into effect July 6, the office of the U.S. Trade Representative said. The administration is also proposing tariffs on roughly $16 billion of new products, which it said would undergo further review, including public hearings.

China plans to hit back with additional tariffs of 25 percent on about $50 billion worth of U.S. products, the country’s Commerce Ministry said in a release Friday. These will also come in two rounds, with penalties on about $34 billion worth, including agricultural products, automobiles and seafood, scheduled to take effect July 6.

The schedule for tariffs on another $16 billion worth of goods, including medical equipment, chemical products and energy products, will be announced later, the ministry said.

“All of the economic and trade achievements previously negotiated by the two parties will also be invalid,” the ministry said in a separate statement.

Eswar Prasad, a professor of international trade at Cornell University, said the tariffs added another front to what is quickly expanding into a global trade war.

“China’s proportionate and targeted tariffs on U.S. imports are meant to send a strong signal that it will not capitulate to U.S. demands,” he said. “It will be challenging for both sides to find a way to de-escalate these tensions.”

The White House’s decision to pursue tariffs appears to be a victory for the more hard-line faction of the Trump administration, including trade advisers Robert E. Lighthizer and Peter Navarro, who has pushed for tougher action on China and opposed a move by others in the administration to reach a deal that would avoid a trade war. In recent weeks, the president had sought China’s help on arranging a summit with North Korea, and China offered the United States a package of purchases of agricultural and energy products that would reach nearly $70 billion in the first year. But that offer was conditional on the United States lifting its threat of tariffs and may now be off the table.

Some advisers, including Treasury Secretary Steven Mnuchin, had feared the economic consequences of a trade war and pushed for a negotiated solution instead. But those arguments ultimately failed to persuade a president who has long viewed tariffs as an effective tool for fixing what he sees as unbalanced trade. While the president has been intent on reducing the trade deficit with China by securing purchases, he remains committed to campaign promises to crack down on China’s trade practices, his advisers said.

In a statement, Trump said that trade between the countries had been “very unfair, for a very long time,” and that the United States would pursue additional tariffs if China retaliates.

In total, the 25 percent tariffs will fall on 1,102 categories of Chinese goods, including nuclear reactors, aircraft engine parts, bulldozers, ball bearings, motorcycles and industrial and agricultural machinery. The list generally focuses on industrial sectors that relate to the country’s Made in China 2025 plan for dominating high-tech industries, like aerospace, automobiles, industrial machinery, information technology and robotics, the administration said.

The revised list dropped some products purchased directly by U.S. consumers, including flat-screen televisions and printer accessories, while adding semiconductors, machinery and plastics, according to an analysis by Chad Bown, a senior fellow at the Peterson Institute for International Economics.

In a call with reporters Friday, a senior official said the administration would soon roll out a process for companies to apply for exclusions to the tariffs for products they cannot source from another location.

The White House says its measures are necessary to reset the trade relationship with China, a country Trump administration officials accuse of gaming economic rules and costing millions of U.S. jobs.

But the prospect of a trade war between the two economies has sparked concern from businesses, many of which depend on access to China’s market, as well as investors and consumer groups. Economists say the levies will both drive up prices for American consumers purchasing products at retail stores and for businesses that depend on China for parts used to make other goods in the United States. That would potentially dampen economic growth that has been stoked by the administration’s tax cuts.

“Imposing tariffs places the cost of China’s unfair trade practices squarely on the shoulders of American consumers, manufacturers, farmers and ranchers,” said Thomas J. Donohue, president of the U.S. Chamber of Commerce. “This is not the right approach.”

The National Retail Federation, which represents grocers, chain restaurants and other stores, said the tariffs would not combat China’s abusive trade practices, but only “strain the budgets of working families by raising consumer prices.”

But the move received commendation from others, including lawmakers across the political spectrum who have urged the president to remain tough on China. Sen. Marco Rubio, R-Fla., called the announcement an “excellent move,” while the Senate’s Democratic leader, Sen. Chuck Schumer, said the tariffs are “right on target.”

“China is our real trade enemy, and their theft of intellectual property and their refusal to let our companies compete fairly threatens millions of future American jobs,” Schumer said. In a briefing with reporters Friday, a senior administration official said that the administration had two separate sets of concerns: unbalanced trade with China and structural issues in the Chinese economy, including subsidies in high-tech industries.

He added that China has a history of using state subsidies to build up excess capacity in a variety of industries that then pushes down prices and drives free-market competitors in the United States out of business. The United States cannot afford to allow China to carry out the same practices in emerging industries, including robotics, new energy vehicles and information technology, he said.

Tensions could escalate further in the coming weeks. The White House is formulating a plan for restricting Chinese investments in the United States and putting stricter limitations on the types of advanced technology that can be exported to the country. It has said those restrictions will go into effect shortly after they are announced by June 30.