The Trump administration indicated it’s willing to negotiate with China on escalating frictions between the world’s two biggest economies, helping to ease fears among investors of a tit-for-tat trade conflict.
U.S. Commerce Secretary Wilbur Ross said China’s response isn’t expected to disrupt the U.S. economy. In an interview on CNBC on Wednesday, he said China’s reaction “shouldn’t surprise anyone.” He said the U.S. isn’t entering “World War III” and left the door open for a negotiated solution.
“Even shooting wars end with negotiations,” Ross said.
Earlier Wednesday, China said it would levy an additional 25 percent levy on about $50 billion of U.S. imports including soybeans, automobiles, chemicals and aircraft. The move matched the scale of proposed U.S. tariffs announced the previous day. The U.S. is allowing 60 days for public feedback and hasn’t specified when the tariffs would take effect, leaving a window open for talks.
China’s retaliation isn’t justified under international trade rules or domestic law, said an official with the U.S. Trade Representative’s office. The appropriate response by China would be for the Asian nation to change its behavior on trade and intellectual property, said the official, who spoke to reporters on condition of anonymity.
U.S. stocks opened sharply lower, but reversed course as investors speculated that the flurry of tariffs may not do much damage to the global economy.
President Donald Trump also downplayed the prospect of a trade war, saying on Twitter Wednesday morning that “we are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S.”
Trump later tweeted that “when you’re already $500 Billion DOWN, you can’t lose,” in a possible reference to America’s trade deficit with China. Figures from the U.S. Commerce Department put last year’s trade gap with the Asian nation at $337 billion.
The Trump administration is urging China to lower tariffs on cars and open its market to U.S. financial services as part of talks to resolve a rise in trade tensions, a person familiar with the matter said earlier this month.
Investors are weighing the risks of a trade war, with the Trump administration’s latest offensive based on alleged infringements of intellectual property in China. The U.S. is targeting high-tech sectors that Beijing sees as the future for its economy.
“I don’t think this will result in a trade war,” said Stefan Selig, a former under secretary for international trade at the Commerce Department who is now managing partner of BridgePark Advisors. “There will be a little of this tit-for-tat stuff,” then the two countries will likely negotiate compromises on intellectual property and other trade and investment irritants, he said.
While the China retaliation was more “belligerent” than expected, Beijing probably wants to de-escalate tensions by underscoring what’s at stake for both sides, Oxford Economics director of global macro strategy, Gaurav Saroliya, said in a research note. “Negotiations will probably lead to less disruptive outcomes for both sides,” Saroliya wrote.
In a statement following the U.S. release of details on its China tariffs, Treasury Secretary Steven Mnuchin said the administration “will continue to engage in discussions with China to address these issues of reciprocal trade.”
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Beijing’s proposed targets strike at the core of commercial relations between the two countries, and at some of the most politically sensitive goods in core Trump constituencies. For example, China is the world’s largest soybean importer and biggest buyer of U.S. soybeans in trade worth about $14 billion last year. Farming states were also among Trump’s staunchest supports in the election.
Both sides have calibrated their current actions around the figure of $50 billion worth of imports. That number accounts for roughly a third of China’s imports from the U.S. last year, versus less than one-tenth of China’s exports to the U.S., according to data from International Monetary Fund.
The implementation date of China’s retaliatory tariffs depends on the outcome of bilateral negotiations, and the U.S. decisions, Deputy Finance Minister Zhu Guangyao told reporters after a news conference in Beijing. “We believe both countries have the ability and wisdom to address the problem,” Zhu said.
Stocks to Watch After Trump Announces Proposed China Tariffs
Industries including aerospace, information and communications technology, robotics and machinery were among those targeted by the U.S. Trade Representative on Tuesday. The agency said it chose products to minimize the impact on the U.S. economy and consumers.
In addition to advanced technologies such as communication satellites, the U.S. list includes items ranging from various types of steel to television components, medical devices, dishwashers, snow blowers and even flame throwers. The 25 percent tariffs come on top of any existing levies.
Trumped-Up Tariffs
Industrial technology categories dominate the USTR’s planned list of 1,333 tariff items
Source: Bloomberg, Office of the U.S. Trade Representative
“The U.S. list suggests that the government is targeting the ‘Made in China 2025’ initiative, while China’s retaliation intends to bring Americans back to the negotiation table,” Zhou Hao, an economist at Commerzbank AG in Singapore, said in an email.
What our analysts say …“The U.S. proposal on tariffs aims to hit China’s industrial ambitions without hurting U.S. consumers,” said Tom Orlik, chief Asia economist at Bloomberg Economics in Beijing. “On both objectives, it will likely fall short. In sum — we think the macro impact will be limited and the strategic objectives difficult to achieve.”“This is far from the worst-case scenario feared by retailers and consumer groups,” according to Bloomberg Intelligence trade-policy analyst Caitlin Webber. “The consumer goods and technology that the U.S. is most reliant on China to provide — like toys, shoes, video game consoles, mobile phones and computers — were all left off this list. These omissions will likely avoid a major popular outcry.” |
China’s Made in China 2025 plan was announced in 2015, and highlighted 10 sectors for support on the way to China becoming an advanced manufacturing power, from information technology to robotics and aerospace. China also has a separate development strategy for artificial intelligence, published last year.
“The current tariff measures from both parties are very unlikely to be implemented,” said Ren Qing, a partner at Global Law in Beijing who has advised the Chinese government on its response to the intellectual-property investigation. “People from American industries may exert pressure on the U.S. government and influence final policy implementation.”
Source: bloomberg.com
