China responds swiftly to U.S. tariffs on $50B in imports

This morning, the Trump administration announced a 25% tariff on up to $50 billion worth of Chinese imports, instantly escalating a trade dispute between the world’s two largest economies.

China’s government responded quickly to the tariff hike by announcing it will immediately impose penalties of “equal strength” on U.S. products.

The Commerce Ministry said it also was scrapping deals to buy more American farm goods and other exports as part of efforts to defuse a sprawling dispute over its trade surplus and technology policy.

A ministry statement gave no details, but a $50 billion list of possible targets announced in April included soybeans, light aircraft, orange juice, whiskey and beef. Much of the impact would fall on Trump’s rural supporters.

“The Chinese side doesn’t want to fight a trade war, but facing the shortsightedness of the U.S. side, China has to fight back strongly,” the statement said. “We will immediately introduce tax measures of equal scale and equal strength, and all economic and trade achievements reached by the two sides will be invalidated.”

Trump’s tariffs were imposed in response to complaints that Beijing steals or pressures foreign companies to hand over technology. American officials say they target products that might benefit from Chinese industrial policies they say violate Beijing’s free-trade commitments.

After a round of talks in May in Washington, Chinese officials promised to buy more American farm goods, natural gas and other products to narrow China’s multibillion-dollar trade surplus with the United States.

But after a June 3 meeting in Beijing, the Chinese government warned it would discard those deals if Trump’s tariff hike went ahead.

Businesspeople and economists say Chinese leaders are less likely to compromise on the technology dispute. They view plans for state-led development of companies capable of competing globally in fields including electric cars, renewable energy and biotech as a route to prosperity and to restore China to its rightful role as a world leader.

Beijing also has announced plans to cut import duties on autos and some consumer goods and to ease limits on foreign ownership in auto manufacturing, insurance and some other industries, though those don’t directly address U.S. complaints.

On Thursday, a Commerce Ministry spokesman said some exporters were rushing to fill orders due to concern trade conditions might change, but said they were “not the mainstream.”

Read: Canadian and U.S. stocks to watch as trade heats up

The U.S. announcement

Trump has vowed to fulfill his campaign pledge to crack down on what he contends are China’s unfair trade practices and efforts to undermine U.S. technology and intellectual property. During an impromptu appearance on the White House North Lawn, the president hailed his “very big tariffs” on China.

“You know we have the great brain power in Silicon Valley, and China and others steal those secrets. And we’re going to protect those secrets. Those are crown jewels for this country,” Trump said.

“’There is no trade war. They’ve taken so much,” Trump said in an interview with Fox & Friends.

The tariffs will cover 1,102 Chinese product lines worth about $50 billion a year. Those include 818 products, worth $34 billion a year, remaining from a list of 1,333 the administration released in April. The government will start to collect the tariffs July 6.

The administration is also targeting another 284 Chinese products, which the administration says benefit from China’s aggressive industrial policies, worth $16 billion a year but won’t impose those tariffs until it collects public comment.

“It’s thorough. It’s moderate. It’s appropriate,” U.S. Trade Rep. Robert Lighthizer said Friday on the Fox Business Network. He added: “Our hope is that it doesn’t lead to a rash reaction from China.”

Trump has already slapped tariffs on steel and aluminum imports from Canada, Mexico and European allies, and his proposed tariffs against China risk starting a trade war involving the world’s two biggest economies.

Chinese foreign ministry spokesman Geng Shuang said Friday that China’s response would be immediate and that Beijing would “take necessary measures to defend our legitimate rights and interests.”

Geng gave no details. Beijing earlier drew up a list of $50 billion in U.S. products that would face retaliatory tariffs, including beef and soybeans, a shot at Trump’s supporters in rural America.

Trump’s decision on the Chinese tariffs comes in the aftermath of his summit with North Korean leader Kim Jong Un. The president has co-ordinated closely with China on efforts to get Pyongyang to eliminate its nuclear arsenal. But he signalled that whatever the implications, “I have to do what I have to do” to address the trade imbalance.

Wall Street has viewed the escalating trade tensions with wariness, fearful that they could strangle the economic growth achieved during Trump’s watch and undermine the benefits of the tax cuts he signed into law last year.

The administration is also working on proposed Chinese investment restrictions by June 30.

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

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