U.S., China Trade War Deepens as Beijing Retaliates With Higher Tariffs
WASHINGTON — The United States and China escalated their trade fight on Monday as Beijing moved to raise tariffs on nearly $60 billion worth of American goods in retaliation for President Trump’s decision to punish China with higher tariffs on a slew of imports.
China’s finance ministry announced that it was raising tariffs on a wide range of American goods to 20 percent or 25 percent from 10 percent in response to Mr. Trump’s decision to raise tariffs to 25 percent on $200 billion worth of Chinese goods. China’s increase will impact the roughly $60 billion in American imports already being taxed as retaliation for Mr. Trump’s previous round of levies, including beer, wine, swimsuits, shirts and liquefied natural gas.
The S&P 500 fell more than 2 percent soon after trading began in New York, and shares of companies particularly dependent on trade with China, including Apple and Boeing, fared poorly. The benchmark index is now down more than 4 percent this month. Signs that investors are concerned about the economic impact of the escalating trade war also appeared in the corporate bond market and commodities markets.
Both sides left a window for negotiators to try to reach a deal before their economies are hit by the higher tariffs. China said it would delay the higher rates for several weeks, while Mr. Trump’s new 25 percent rate impacts only products sent to the United States as of May 10, leaving a gap between the time something leaves China and arrives by boat at American ports.
But it is unclear whether the two sides can quickly resolve what has once again become a heated economic dispute. Progress toward a trade agreement between the United States and China nearly collapsed over the past two weeks, after American negotiators accused China of reneging on substantial portions of a trade agreement it had previously committed to.
Mr. Trump, in remarks at the White House, said “I love the position we’re in,” adding that the United States is “taking in billions of dollars in tariffs.” The president said he was not concerned by China’s planned tariff increase, saying “there can be some retaliation but it can’t be very very substantial by comparison” given China imports far less than it sells to the United States.
Mr. Trump added that his administration would take steps to help farmers hurt by any retaliation.
“We’re going to take the highest year, the biggest purchase that China has made with our farmers which is about $15 billion and do something reciprocal for our farmers,” the president said. “Our farmers will be happy. Our manufacturers will be happy and our government is happy because we’re taking in tens of billions of dollars. I think it’s working out well.”
In addition to raising tariffs on Friday, Mr. Trump is now proceeding with another threat to impose a 25 percent tariff on the rest of the goods that China exports to the United States, which his advisers said Friday was roughly $300 billion of Chinese products. The Office of the United States Trade Representative is expected to begin the process necessary to tax those products on Monday when it requests public comment.
Mr. Trump said he has not yet decided whether to proceed with those additional tariffs. The president has appeared to relish the new fight, tweeting over the past several days that his approach would help the United States economy and hurt China’s, despite comments from his top economic adviser on Sunday that both sides would suffer from a trade war.
“China should not retaliate-will only get worse!” Mr. Trump wrote on Monday in a series of early-morning tweets.
“I say openly to President Xi & all of my many friends in China that China will be hurt very badly if you don’t make a deal because companies will be forced to leave China for other countries. Too expensive to buy in China. You had a great deal, almost completed, & you backed out!”
While the two sides have talked of further meetings in coming months, they continue to have significant differences over how tariffs should be rolled back between the countries, and whether the negotiated provisions must be enshrined in Chinese law. Mr. Trump could meet with China’s president, Xi Jinping, when both are in Japan next month for a meeting of the Group of 20 leaders.
Mr. Trump took to Twitter to defend the tariff increase on Monday, saying “there is no reason for the U.S. Consumer to pay the Tariffs.” He argued that tariffs did not fall heavily on American consumers, who could simply buy what they need from the United States or other countries that don’t face American tariffs.
But several recent academic studies have found that the incidence of the tariffs falls heavily on American consumers, rather than Chinese businesses.
Economists differ in their forecasts of how much tariffs on both sides will reduce economic growth, but most agree that the cost of tariffs is passed on to businesses or consumers in the form of higher prices.
The president’s economic adviser, Larry Kudlow, on Sunday said that both the United States and China would “suffer” as a result of the tariffs, but that America would benefit in the end if this trade war forces China to give better treatment to American businesses than it had in the past.
Because China’s entire imports from the United States are considerably less than $200 billion, it has not had the option of matching the United States dollar for dollar on the tariff threats. China had matched last September President Trump’s 10 percent tariffs on $200 billion a year in goods with its own tariffs of 5 percent to 10 percent on $60 billion a year in American goods.
On Monday, China’s ministry of finance raised those tariffs by introducing four new categories for the $60 billion in goods. The tariffs on those four categories are 25 percent, 20 percent, 10 percent and 5 percent.
The finance ministry did not specify the dollar value of goods in each of the four categories. But the largest number of tariff codes in the $60 billion was assigned to the 25 percent category, suggesting that China was raising the tariffs on many imports to that level.
Beijing’s retaliation comes at a time when many in China feel that the United States has behaved highhandedly in threatening tariffs. “Mutual trust and respect are of the essence in handling the negotiations,” said Zhu Ning, a Tsinghua University economics professor.
American companies are fearful that China might resort to other methods to retaliate, beyond tariffs. Hu Xijin, the well-connected chief editor of the Global Times, a tabloid directly owned by the Chinese Communist Party, tweeted on Monday evening that China might halt purchase of American agricultural and energy products and Boeing aircraft and restrict offerings of American services in China. He also cited unidentified Chinese scholars who had speculated that China might sell some of its large holdings of Treasuries.
The question now is whether another round of tit-for-tat tariffs cements a prolonged economic struggle between the United States and China. Since Mr. Trump was elected, the two sides have repeatedly seemed close to a deal only for it to fall apart. Commerce Secretary Wilbur Ross seemed to have the outlines of a deal in 2017. Treasury Secretary Steven Mnuchin talked of a deal being at hand a year ago.
Mr. Trump himself was upbeat about the prospects for a deal last month. Chinese officials have been consistently encouraging about progress toward a deal for the past two years, even though a hardening of China’s stance last week appears to have contributed to Mr. Trump’s decision this week to raise tariffs.
Last week’s round of talks in Washington is the 11th time that senior Chinese and American officials have met to discuss trade since Mr. Trump took office.
“What should be concerning to markets is how close both sides have gotten to a deal before one side backs off,” something that has happened again and again, said Hannah Anderson, a global markets strategist in the Hong Kong office of J.P. Morgan Asset Management.
Share prices dipped in Asian and European stock markets on Monday, and the trading of futures contracts indicated that Wall Street would also be down when it opens on Monday. The renminbi, China’s currency, also fell half a percent against the dollar in trading on Monday morning. Goldman Sachs on Monday morning revised its forecast for the value of the renminbi to only 6.95 to the dollar three months from now, instead of the 6.65 it had been expecting.
Falls in the Chinese currency make Chinese goods more competitive in foreign markets, including Europe’s as well as the United States. But a weakening renminbi also creates an incentive for Chinese companies and households to try to evade China’s controls on international money movements and shift large sums out of the country, which could undermine the stability of China’s financial system.