Commentary

Markets Rattled As China Retaliates With A Tariff List Of Its Own

While proclaiming that it really does not want a trade war, China this morning fired back at President Donald Trump’s proposed tariffs on some 1,300 goods with a list of 106 American products — including soybeans, automobiles, aircraft, whiskey and beef — that will see retaliatory tariffs if the U.S. follows through on its plans. The announcement immediately sent U.S. stock futures tumbling, Bloomberg reports, as the “protectionist rhetoric between the world’s top two economies” escalated.

Still, China’s deputy finance minister, Zhu Guangyao, told reporters at a press conference in Beijing “that the Chinese government doesn’t want a trade war,” the Guardian’s Graeme Wearden reports, saying that it “would be a ‘lose-lose’ for China and America.” 

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Yesterday, “the Trump administration  unveiled a list of about $50 billion in Chinese electronics, aerospace and machinery products it plans to hit with steep tariffs, the latest move in a deepening U.S.-China trade conflict,” David J. Lynch reports for the Washington Post

“The new 25% import taxes are designed to penalize China for discriminatory policies that the United States says put its companies at a disadvantage in the Chinese market. President Trump has complained that the Chinese government forces U.S. companies to surrender their proprietary technology in return for access to local customers and steals other trade secrets via cybertheft,” Lynch continues.

“China said the planned U.S. move ‘seriously violates China's legitimate rights and interests under World Trade Organization rules and threatens China’s economic interests and security,’” Daniel Shane reports for CNN Money.

“The list of goods excludes many Chinese-made consumer products available for sale at Target or Walmart, including clothing, shoes and toys. But it will most likely increase costs for American manufacturers that depend on imported parts because it concentrates heavily on machinery and high-tech components,” writes Ana Swanson for the New York Times.  

Observers were apparently surprised by “the speed with which the trade struggle between Washington and Beijing is ratcheting up — the Chinese government took less than 11 hours to respond with its own measures,” Reuters’ Michael Martina and David Lawder write

“The assumption was China would not respond too aggressively and avoid escalating tensions. China’s response is a surprise for some people,” Julian Evans-Pritchard, senior China economist at Capital Economics, tells them. He noted “that neither [country] had yet called for enforcement of the tariffs,” however.

“It’s more of a game of brinkmanship, making it clear what the cost would be, in the hopes that both sides can come to agreement and none of these tariffs will come into force,” Evans-Pritchard added, Martina and Lawder report.

“The Chinese plan makes good on warnings that Beijing would respond to U.S. trade actions with proportional measures. In a key difference, Beijing has targeted the biggest American exports to China: soybeans and airplanes. Many of the other goods on the list — including sorghum and beef — intentionally affect the U.S. Farm Belt, where voters supported President Donald Trump, according to people familiar with the plans for retaliation,” Liyan Qi, Lingling Wei and Kenan Machado report for the Wall Street Journal

“Some economists see a risk in going after high-profile U.S. products, leaving Beijing few further options in a trade fight. ‘Beijing is facing a difficult time now as it has resorted to its core weapons, such as soybeans and cars. If the disputes escalate, what else can Beijing use?’ said Jianguang Shen, an economist at Mizuho Securities,” they continue.

Even before the Chinese reacted with measures that could have negative impacts on  the livelihoods of American farmers and workers, Bloomberg “Gadfly” columnist David Fickling opined that the Trump tariffs “will most likely hurt the parts of the economy it purports to help. …Once you consider the ways domestic suppliers could raise prices in response to the reduced competition from China (as is already happening with steel and aluminum), the cost to end-product manufacturers will probably be higher.”

How, exactly, did we wind up on the brink of a trade war that is rattling markets worldwide?

“Trump based his volcanic campaign on the specious notion that the U.S. trade deficit with China costs American jobs,” Time’s Charlie Campbell reminds us

Things were relatively calm for a while, “but the recent replacement of moderate members of Trump’s inner circle with China hawks seems to have rekindled the bellicosity of the stump. In late March, the real estate mogul announced tariff hikes of 25% on steel and 10% on aluminum that American manufacturers have slammed as increasing their production costs,” Campbell writes.

“We’re in a place where we thought we wouldn’t be back in 2017, when it seemed Trump’s mercantilist instincts had been turned by the ‘economic grownups,’” Prof. Nick Bisley, an Asia expert at La Trobe University, tells Campbell. “But he now seems to have around him enablers.”

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