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May 13, 2019

Business | Trump’s trade approach under attack as China readies retaliation; markets poised for big sell-off

By Taylor Telford 



Beijing plans steep tariffs on $60 billion in U.S. goods in response to White House action


FILE PHOTO: U.S. President Donald Trump waves during joint statements with China's President Xi Jinping at the Great Hall of the People in Beijing, China, November 9, 2017. REUTERS/Thomas Peter/File Photo (Thomas Peter/Reuters)
BREAKING: The announcement from the finance ministry in Beijing comes days after the United States raised tariffs on some Chinese imports as talks to resolve a trade fight between the countries faltered.
This is a developing story and will be updated.
President Trump’s efforts to calm investors while he launches a full-scale trade war with China showed signs of cracking, as one of his top advisers admitted the approach could damage the U.S. economy, a Goldman Sachs report predicted it might lead to higher interest rates and China vowed to impose tariffs on $60 billion in U.S. goods on June 1.
China’s response, announced by its Ministry of Finance, said it targeted “U.S. unilateralism and trade protectionism.”
The rapid-fire succession of stark economic news spooked financial markets, with U.S. futures indicating drops of 1.2 percent at the open for both the Dow Jones industrial average and the Standard & Poor’s 500 index.
Trump attempted to assuage the public on Monday in a series of Twitter posts, but some were full of typos and misspellings, suggesting his comments hadn’t been thoroughly vetted by White House officials and might not represent fully planned out policy initiatives.
The dramatic escalation comes after Trump last week imposed a 25 percent tariff on $200 billion of Chinese imports to the United States. He also told aides to begin plans to hit more than $300 billion in other Chinese goods. Trump has alleged that the Chinese government is ripping off U.S. consumers and businesses by unfairly subsidizing Chinese companies, stealing intellectual property from U.S. firms, and flooding global markets with cheap goods to put other companies out of business.
On Monday, he warned China against retaliation on tariffs in a series of early morning tweets. But China showed it planned to counter his adversarial approach with their own penalties against U.S. companies. The Chinese government said it would impose tariffs on U.S. imports starting on June 1, with steepest penalties hitting certain beef, live plants, dyed flowers, and a range of fruits and vegetables. The tariffs would range from 5 percent to 25 percent.
Chinese foreign ministry spokesman Geng Shuang said Monday Beijing did not believe that raising tariffs would solve “any problems” but warned that China would be ready to defend itself.
“China will never succumb to foreign pressure,” he said. “We are determined and capable of safeguarding our legitimate rights and interests. We still hope that the U.S. will meet us half way.”
U.S. agriculture companies could be hit hard from the new penalties, as it would make their products more expensive to Chinese buyers. U.S. farm groups had already complained to the White House that they were caught in the middle of Trump’s trade skirmish and Trump had pledged to assist them. He has said he would seek an additional $15 billion in U.S. taxpayer money to aid farmers.
Trump had suggested that the impact of the tariffs that took effect Friday could be mitigated by simply buying American-made products or those manufactured in countries not subject to the tax. He also claimed the tariffs would drive business away from China and warned that the situation “will only get worse” if a deal is not reached.
....completely avoided if you by from a non-Tariffed Country, or you buy the product inside the USA (the best idea). That’s Zero Tariffs. Many Tariffed companies will be leaving China for Vietnam and other such countries in Asia. That’s why China wants to make a deal so badly!...
— Donald J. Trump (@realDonaldTrump) May 13, 2019
“Their (sic) is no reason for the U.S. consumer to pay the Tariffs, which take effect on China today,” Trump tweeted. “Also, the Tariffs can be completely avoided if you by (sic) from a non-Tariffed country, or you buy the product inside the USA (the best idea.)”
Trump’s comments about the effects of the tariffs clash with those of National Economic Council Director Larry Kudlow, who acknowledged that Americans will pay the price in an interview on “Fox News Sunday.”
"It’s not China that pays tariffs,” host Chris Wallace said. “It’s the American importers, the American companies that pay what, in effect, is a tax increase and oftentimes passes it on to U.S. consumers.”
“Fair enough,” Kudlow replied. “In fact, both sides will pay. Both sides will pay in these things.”
The new tariffs largely affect business equipment, but they also apply to $40 billion in consumer products like air conditioners, furniture, clothing and spark plugs. The financial impact of the tariffs could be delayed because it will apply only to products that left China on Friday, which often take two or three weeks to arrive from Shanghai. But businesses often pass these costs on to consumers, which could drive up prices across the country.
“The costs of US tariffs have fallen entirely on US businesses and households, with no clear reduction in the prices charged by Chinese exporters,” Goldman Sachs analysts wrote in a note to investors Monday. It also said “the effects of the tariffs have spilled over noticeably to the prices charged by US producers competing with tariff-affected goods.”
The analysts wrote that the tariffs could pose a double-whammy to the U.S. economy, by driving up the cost of goods and potentially leading the Federal Reserve to raise interest rates in order to counter inflation. That could further slow the economy.
Trade experts and business groups have said Trump routinely misstates how tariffs work. Tariffs are taxes paid by U.S. companies that bring in products from overseas. So those costs are borne by companies like manufacturing firms, chemical producers and others that rely on Chinese products. This drives up the cost of Chinese products, which Trump has said will help U.S. competitors, but it also pushes up the cost for U.S. companies that use Chinese products as well.
After Trump expressed frustration with the pace of trade talks and threatened to impose steep tariffs on $200 billion in Chinese imports two weekends ago, negotiators were unable to avert the tariffs, and the talks concluded Friday without any announcement of an agreement. During negotiations, U.S. officials accused China of going back on prior details of the deal; China denied this.
"They were constructive discussions between both parties, that’s all we are gonna say. Thank you,” Treasury Secretary Steven Mnuchin said after the talks concluded.
This is a developing story and will be updated.
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