China announced on Friday it would hit about $60 billion worth of U.S. exports with new tariffs in response to President Donald Trump’s decision this week to escalate potential trade penalties on Beijing, compounding concern in the business sector that there is no end in sight to the growing conflict.
China said it was taking the action “because the U.S. side has repeatedly escalated the situation despite the interests of both enterprises and consumers,” according to an informal translation from a China Ministry of Commerce statement. “China has to take necessary counter-measures to defend the country’s dignity and the interests of the people, defend free trade and the multilateral system, and defend the common interests of all countries in the world.”
The Trump administration on Wednesday announced it would consider increasing proposed tariffs on $200 billion worth of Chinese goods from the 10 percent rate it initially proposed to 25 percent. A comment period on those potential duties will close on Sept. 5 and, shortly after that, the president will be in a position to impose those tariffs.
Earlier this week, U.S. Trade Representative Robert Lighthizer said the possible increase in the tariff rate “is intended to provide the Administration with additional options to encourage China to change its harmful policies and behavior and adopt policies that will lead to fairer markets and prosperity for all of our citizens.”
If it carries through on the latest retaliation, China will be imposing some form of tariffs on nearly all of the $130 billion in goods it imports from the United States. Beijing will be unable to match U.S. tariffs — which are currently on a course to hit $250 billion worth of Chinese exports — on a dollar-for-dollar basis but the government could make it difficult for U.S. corporations doing business there.
On Friday, China’s Ministry of Finance said the tariffs on U.S. goods will be at rates of 5 percent, 10 percent, 20 percent and 25 percent and will target more than 5,200 types of goods that the U.S. sends. China is proposing that nearly half of the targeted U.S. goods be hit with a 25 percent tariff, including U.S. energy exports like biodiesel and liquefied natural gas and more U.S. agricultural goods like lamb and honey, according to an informal translation of the list. The Wall Street Journal reported other targeted items included copper, logs, textiles, chemicals, pigments, fishing gear, sporting equipment, Christmas supplies, furniture, upright pianos, tires, condoms, engines, juices, gin, sparkling wine, nonalcoholic beer, communion wafers and bottled water.
In its announcement Friday, China’s Commerce Ministry called its countermeasures “rational and restrained.”
“Any unilateral threat or blackmail will only lead to intensification of conflicts and damage to the interests of all parties,” a ministry spokesman said in a statement.
The Trump administration has been telling both Congress and businesses to expect some short-term pain from its tariff strategy, and arguing the United States will be better off in the long run if it confronts China’s “predatory” trade practices now and persuades Beijing to make changes. However, business groups are increasingly concerned that there will not be a negotiated settlement anytime soon and the end result will be a new economic reality where the United States and China simply have higher tariffs on each other’s goods.
“The big concern for business is we’re caught in the middle of all this,” said Rufus Yerxa, president of the National Foreign Trade Council, which represents major exporters. “You’re seeing tariffs go up and the adverse impacts, but you don’t know if that’s going to be a permanent state of affairs and the trade war never gets resolved, or whether you get some kind of deal that takes off the tariffs and opens up new opportunities. That’s a very wide gap” between potential outcomes, which makes business planning extremely difficult.
Last week, Trump achieved a victory of sorts when European Commission President Jean-Claude Juncker agreed to start trade talks with the United States in exchange for Trump agreeing not to impose any new tariffs on EU exports as long as those talks are making progress. But Yerxa said he was skeptical that ratcheting up tariffs on China created the right atmosphere to reach a similar agreement with Chinese President Xi Jinping.
“We don’t see a lot of evidence yet of vigorous negotiations yet to get a deal, and I’m personally not convinced that this tit-for-tat back-and-forth is going to create an easy political environment for the two sides to declare a cease-fire and start negotiating,” Yerxa added.
White House National Economic Council Director Larry Kudlow said in an interview on Bloomberg TV on Friday morning that China “better not underestimate President Trump’s determination to follow through on our asks.” He added that potential talks between Trump and Xi could happen “if the opportunity presents itself.”
“President Trump enjoys bilateral discussions,” Kudlow said, but cautioned that he doesn’t know if there will be such talks.
The news of China’s potential retaliation comes the same day as the release of Commerce Department numbers showing that the U.S. goods trade deficit with China rose again in June and remains on track to match or surpass the record of $375 billion set in 2017, despite Trump’s attempts to rein it in.
The monthly trade gap, which measures how much U.S. imports exceed U.S. exports, totaled $33.5 billion for China in June, up slightly from $32.6 billion from May. For the first six months of the year, the goods trade deficit with China was $186 billion, up nearly 9 percent from the $171 billion gap during the same period in 2017.
The overall trade deficit in both goods and services also increased in June to $46.3 billion, a jump of more than 7 percent from the May tally. At the current pace, the overall trade deficit will rise for the second consecutive year under Trump, surpassing last year’s level of $552 billion.
The trade deficit — both with China individually and the rest of the world— has been a particular focus of the president, who views the data as evidence of a massive transfer of wealth to other countries as a result of bad trade deals and unfair foreign policies.
However, most economists attribute the gap to macroeconomic factors, such as low savings and high consumption rates in the United States. The trade gap also often increases when U.S. economic growth is strong.
China has retaliated in kind to Trump’s initial tariffs and has promised to respond accordingly to future Trump actions.
Trump has already imposed a 25 percent tariff on more than $34 billion worth of Chinese goods to put pressure on Chinese leaders to change policies he believes have hurt the United States. He is poised to hit another $16 billion of Chinese goods with a 25 percent duty in coming weeks.
Last week, Lighthizer, in the face of tough questioning from senators, said strong action was needed to trim the bilateral trade deficit with China from the record level set in 2017.
“These are numbers — $375 billion in goods deficits, and I repeat not as a result of economic forces — those are numbers that are not sustainable, never even heard of in the history of the world. These are such cataclysmic numbers that something has to be changed,” he told a Senate Appropriations subcommittee.
Still, the entire U.S. trade deficit, including China and all other countries, totaled just 2.8 percent of the U.S. gross domestic product of $19.5 trillion in 2017, down sharply from a peak of 5.5 percent in 2006, when GDP was $13 trillion.
The U.S. economy is forecast to grow to more than $20 trillion in 2018, so even if the overall goods and services trade deficit rises slightly this year, it should remain well below peak levels as a percentage of GDP.
The wider trade gap in June, compared to May, reflected a slight drop in exports and a slight rise in imports. Higher oil prices helped drive the import tally higher, the Commerce Department report showed.