China vows retaliation for $200 billion US tariff threat

Associated Press

BEIJING (July 11, 2018) — The Chinese government vowed Wednesday to take "firm and forceful measures" against U.S. threats to expand tariff hikes to thousands of products like fish sticks, apples and French doors as their trade dispute escalates.

China gave no details but earlier threatened "comprehensive measures" if Washington took more action. That prompted fears Beijing, running out of imports for retaliation due to its lopsided trade balance with the U.S., might try to disrupt operations of American automakers, retailers and others that see China as a key market.

The spiraling conflict over Chinese technology policy threatens to chill global economic growth. It stems from Washington's complaint that Beijing steals or pressures companies to hand over technology and worries that plans for state-led development of Chinese champions in robots and other fields might erode American industrial leadership.

A possible second round of tariff hikes announced Tuesday by the U.S. Trade Representative targets a $200 billion list of Chinese goods. That came four days after Washington added 25 percent duties on $34 billion worth of Chinese goods and Beijing responded by increasing taxes on the same amount of American imports.

The abrupt escalation is "totally unacceptable," said a Commerce Ministry statement. It said Beijing would take unspecified "necessary countermeasures" to protect its "core interests."

Asked what Beijing would do, foreign ministry spokeswoman Hua Chunying gave no details but said, "We will take firm and forceful measures."

The USTR said it was responding to Beijing's decision to retaliate instead of changing its policies. President Donald Trump has threatened higher tariffs on more than $500 billion of goods, or nearly all of China's annual exports to the United States.

The USTR will accept public comments and hold hearings Aug. 20-23 before reaching a decision after Aug. 31, according to a senior U.S. official who briefed reporters on condition of anonymity.

The first U.S. tariff list focused on Chinese industrial products, an attempt to reduce the direct impact on American consumers.

The new list includes vacuum cleaners, furniture, auto and bicycle parts, French doors and plywood. It left untouched U.S.-branded smartphones and laptop computers.

That "will hit the Chinese export sector hard," said Rajiv Biswas of IHS Markit in a report.

China's imports of U.S. goods are so small that Beijing "cannot match fresh U.S. tariffs," said Vishnu Varathan of Mizuho Bank in a report.

China bought $130 billion of U.S. goods last year. Both governments have raised tariffs on $34 billion worth of each other's goods and already said they are considering additional charges on another $16 billion. That would leave China only $80 billion for further retaliation.

Instead, its heavily regulated economy gives Beijing tools to disrupt operations for American companies. Regulators can deny or cancel licenses or tie up companies by launching tax, environmental or anti-monopoly investigations.

Companies are watching U.S. chipmaker Qualcomm Inc., which has waited for months for Chinese regulators to decide whether to allow its proposed $44 billion acquisition of NXP Semiconductors. All other major governments have approved the deal.

The economic impact of the conflict already is spreading.

The European Union Chamber of Commerce in China said this week its member companies are rearranging the global flow of their goods to make sure any bound for the United States don't pass through China.

Members of Congress are increasingly questioning Trump's tactics. They warned tariffs on imports raise consumer prices and expose U.S. farmers and manufacturers to retaliation.

"Tonight's announcement appears reckless and is not a targeted approach," said Senate Finance Chairman Orrin Hatch in a statement.

Envoys from the two sides last met June 3 when Commerce Secretary Wilbur Ross visited Beijing for talks with Vice Premier Liu He. They have given no indication when they might meet again.

Chinese leaders have tried without success to recruit support from Europe and other governments. They criticize Trump's tactics but share U.S. complaints about Beijing's industrial policies.

Investors had been taking the trade war in stride but Tuesday's announcement appeared to dent that optimism.

On Wednesday, China's main stock index lost 1.8 percent and Japan's market benchmark fell 1.1 percent. Hong Kong's main index shed 1.3 percent.

The conflict is "far from over," warned Hannah Anderson of JP Morgan Asset Management in a report, "and the impact will be global."

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