BEIJING/SHANGHAI – China urged the United States on Friday to “pull back from the brink” as President Donald Trump’s plans for tariffs on up to $60 billion in Chinese goods brought the world’s two largest economies closer to a trade war.
The escalating tensions between Beijing and Washington sent shivers through financial markets, as investors foresaw dire consequences for the global economy if trade barriers start going up.
Trump is planning to impose the tariffs over what his administration says is misappropriation of U.S. intellectual property. A probe was launched last year under Section 301 of the 1974 U.S. Trade Act.
Responding the U.S. import tariffs on steel and aluminum that went into effect on Friday, though announced by Trump earlier this month, China unveiled plans to levy additional duties on up to $3 billion of U.S. imports including fresh fruit, wine and nuts.
“China doesn’t hope to be in a trade war, but is not afraid of engaging in one,” the Chinese commerce ministry said in a statement on Friday.
“China hopes the United States will pull back from the brink, make prudent decisions, and avoid dragging bilateral trade relations to a dangerous place.”
In a presidential memorandum signed by Trump on Thursday, there will be a 30-day consultation period that only starts once a list of Chinese goods is published.
That effectively creates room for potential talks to address Trump’s allegations on intellectual property theft and forced technology transfers.
Trump said he views the Chinese as “a friend”, and both sides are in the midst of negotiations.
The inevitable fall in demand from a full-blown trade war would spell trouble for all the economies supplying the United States and China.
Feeling the chill, MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 2.4 percent, tracking a large overnight fall in Wall Street shares, but perceived safe havens such as government bonds gained.
“The upshot is that today’s (U.S.) tariffs amount to no more than a slap on the wrist for China,” Mark Williams, Chief Asia Economist at Capital Economics, wrote in a note. “China won’t change its ways. Worries about escalation therefore won’t go away.”
Williams estimated that the $506 billion that China exported to the United States drove around 2.5 percent of its total gross domestic product, and the $50-60 billion targeted by the U.S. tariffs contributed just around 0.25 percent.
Trump, however, appears intent on fulfilling election campaign promises to reduce China’s huge trade surplus with the United States.
“The American and Chinese governments should resolve existing trade frictions in a way that averts a trade war and promotes open markets and fair economic exchange,” said AmCham Shanghai President Kenneth Jarrett.”
“As our members increasingly tell us, however, the current trading relationship is neither open nor fair. It is time for China to take remedial action and show that it is a true partner in global trade.”
‘Drawing its bow’
Alarm over Trump’s protectionist leanings mounted earlier this month after he imposed hefty import tariffs on steel and aluminum under Section 232 of the 1962 U.S. Trade Expansion Act, which allows safeguards based on “national security”.
That measure had not targeted Chinese imports alone.
On Friday, the Chinese commerce ministry said China will levy duties on up to $3 billion of U.S. imports in response to the steel and aluminum tariffs, which appeared modest by comparison to the U.S. penalties.
“With the restrained response, China hopes Trump can realize his errors and mend his ways,” said Xu Hongcai, deputy chief economist at the China Centre for International Economic Exchanges, a Beijing think tank.
“If we really want to counter, the strongest response would be to target soybean and automobiles. This would hurt the U.S.,” said Xu. “China is ‘drawing its bow but not firing. We still have some cards to play.”
In retaliation for the U.S. tariffs in steel and aluminum, China is considering levying an additional 15 percent tariff on U.S. products including dried fruit, wine and steel pipes and an extra 25 percent duty on pork products and recycled aluminum.
China has assembled a list of 128 U.S. products in total that could be targeted if the two countries are unable to reach an agreement on trade issues, the ministry said.
The commerce ministry said China would implement the measures in two stages: first the 15 percent tariff on 120 products including steel pipes and wine worth $977 million, and later, the higher 25 percent tariff on $1.99 billion of pork and aluminum.
U.S. wine exports to China last year were $79 million, according to data from the U.S. Wine Institute, which represents Californian wine makers.
The Chinese list also included close to 80 fruit and nut products. U.S. exports of fruits, frozen juices and nuts to China amounted to $669 million last year, and it was the top supplier of apples, cherries, walnuts and almonds.