China vows to fight the Trump administration on its tariff hike

China’s government accused the Trump administration of damaging its credibility by acting erratically on trade and vowed Wednesday to fight back if Washington moves forward with a threatened tariff hike.

A foreign ministry spokeswoman complained the U.S. decision to renew a threat to raise duties on a $50 billion list of Chinese goods conflicts with an agreement in mid-May aimed at settling that dispute. Treasury Steven Mnuchin said then the conflict was “on hold” after Beijing promised to buy more U.S. goods to help narrow its multibillion-dollar trade surplus with the United States.

The conflict comes as Commerce Secretary Wilbur Ross is scheduled to visit Beijing on Saturday for more talks. The spokeswoman, Hua Chunying, declined to say whether Tuesday’s announcement might disrupt those plans, and the Commerce Ministry didn’t immediately respond to questions about the status of the meeting.

An advance team for Ross is scheduled to arrive in Beijing today, Wednesday, and meet with Chinese officials to outline which issues will be discussed on Saturday, according to The Wall Street Journal. Yet if the two sides can’t come to an agreement on the outline of the talks, Ross’ trip could be scuttled, The Journal said. 

“In the midst of seemingly fruitful negotiations to increase Chinese imports from the U.S., the U.S. measures underscore that economic tension and rivalry between the world’s two largest economies is on the rise,” wrote Louis Kuijs, head of Asia economics at Oxford Economics, in a research note.

Hua gave no indication whether Beijing planned to act on its own threat to retaliate by raising duties on a $50 billion list of American goods including beef and soybeans.

“Every flip-flop and U-turn of a country will be simply depleting and squandering its own credibility,” Hua said at a regular briefing.

“We do not want a trade war, but we are not afraid of one. We will fight back,” she said. “We will definitely take forceful measures to defend our legitimate interests.”

The White House announcement said Tuesday it also would impose curbs on Chinese investment and purchases of high-tech exports.

At the same time, the Trump administration is tackling several other trade issues. The exemption for European Union countries under the steel and aluminum tariffs expires June 1. And North American Free Trade Agreement (NAFTA) discussions are still ongoing. All this promises to make for a busy June. 

Market reaction

Asian financial markets tumbled on renewed worries about a U.S.-Chinese trade spat. China’s main market index fell 2.5 percent and Japan’s benchmark lost 1.5 percent.

The White House’s latest tariff action focuses on advanced technologies, including those such as robots and electric cars that China has said it wants to develop under its “Made in China 2025” program. The White House said a list of products would be announced June 15.

Trump’s surprise announcement reflects his frustration at criticism of his earlier deal with Beijing, Eurasia analysts said in a report. They said he appears less concerned that he needs Chinese support for his proposed meeting with North Korean leader Kim Jong-Un.

“Trump is going on offense, reverting to his earlier instincts on China and re-empowering the trade hawks in his cabinet,” Eurasia Group said. “This dynamic makes it likely that both tariffs and investment restrictions will go into effect.”

The American Chamber of Commerce in China said companies are uneasy about the threat of export and investment controls but see them as a possible way to make progress on longstanding complaints about market access and investment curbs.

As a result of Trump’s tariff threat, Washington is in very intense negotiations with Beijing “in a way that we haven’t been for so many years,” said the chamber chairman, William Zarit. He said companies hope Beijing can be persuaded to “level the playing field” by easing curbs on foreign investment and business activity in its state-dominated economy.

“I wouldn’t say we are in favor of, specifically, export controls, investment restrictions,” Zarit said at a news conference. But he said American companies want equal treatment, “and this seems to be one of the ways to do that.”

Trump has focused on pressing Beijing to narrow its multibillion-dollar trade surplus with the United States, but Zarit said American companies see other issues as higher priorities.

As Chinese companies expand abroad, the United States, Europe and other trading partners are pressing Beijing to ease curbs that keep their companies out of industries including banking, insurance, telecoms and health care.

“China’s success means that it can no longer credibly defend protectionist policies on the grounds that it is still a ‘developing country’,” the American chamber said in a report Wednesday.

The tariff threat is a “very powerful” negotiating tactic, said Lester Ross, chairman of the American chamber’s policy committee. However, he said tariffs are a tax on American consumers and a blunt tool to address “very complex problems that hamper trade and investment relationships.”

Analysts in the United States suggested the newly confrontational stance also might be aimed at appeasing congressional critics of a deal the Trump administration made Friday that allowed Chinese telecom giant ZTE Corp. to stay in business.

ZTE agreed to remove its management team, hire American compliance officers and pay a fine. That would be on top of a $1 billion penalty ZTE paid for selling high-tech equipment to North Korea and Iran in violation of U.S. sanctions.

In return, the Commerce Department lifted a seven-year ban on ZTE’s purchase of U.S. components that it imposed earlier in May. Trump said last month the ban threatened too many Chinese jobs and he wanted to get the company back in business.

Chinese leaders have promised piecemeal trade-related changes including allowing full foreign ownership in their auto industry by 2022.

However, American companies have “major concerns” about unfair conditions, and the recent moves haven’t done enough to alleviate those concerns, said the American chamber’s Ross.

European companies also complain they are blocked from acquiring most assets in China while Chinese companies are on a global buying spree.

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