China says it must retaliate to Trump tariffs as experts say full-blown trade war 'now seems certain'

'The downward spiral that we have previously warned about now seems certain to materialise'

Adam Withnall
Tuesday 18 September 2018 13:09 BST
Economists think the tariffs could put a dent in consumer spending
Economists think the tariffs could put a dent in consumer spending (AFP/Getty)

China says it has no choice but to retaliate with “countermeasures” to Donald Trump’s announcement of new tariffs on $200bn worth of Chinese imports, forcing a leading business group to declare a “downward spiral” in trade between the world’s two biggest economies seems inevitable.

On Monday, the US president said he would hike taxes on a slew of products imported from China, a measure likely to push up prices for consumers for the first time.

In the same announcement, Mr Trump said if Beijing chose to retaliate, the US would impose 25 per cent tariffs on virtually all of the $500bn worth of Chinese goods it imports.

Urging caution, a statement from China’s commerce ministry said it “deeply regrets” Mr Trump’s new tariffs.

“China will adopt countermeasures to safeguard its legitimate rights and interests and the global free trade order,” it said.

Foreign ministry spokesman Geng Shuang told a news briefing the US’s actions brought “new uncertainty” to talks between the two countries.

“China has always emphasised that the only correct way to resolve the China-US trade issue is via talks and consultations held on an equal, sincere and mutually respectful basis. But at this time, everything the United States does does not give the impression of sincerity or goodwill,” he said.

It is unclear what China’s “countermeasures” will entail. China imports far less from the US than it exports – a trade deficit much bemoaned by Mr Trump that amounted to $336bn last year.

If it runs out of American goods to tax in reciprocal measures, Beijing could resort to imposing new bureaucratic and diplomatic hurdles on US businesses, making it harder for them to operate in China.

Last week, the American Chambers of Commerce in China reported 52 per cent of more than 430 companies it surveyed said they have faced slower customs clearance and increased inspections and bureaucratic procedures since the trade dispute began.

William Zarit, the organisation’s chairman, said in a statement on Tuesday Washington was underestimating China’s ability to push back on tariffs.

“The downward spiral that we have previously warned about now seems certain to materialise,” he said.

“Contrary to views in Washington, China can – and will – dig its heels in, and we are not optimistic about the prospect for a resolution in the short term. No one will emerge victorious from this counter productive cycle.”

In practical terms, Mr Trump’s new tariffs will start on Monday at 10 per cent on 5,000 Chinese-made goods. They will rise to 25 per cent on 1 January.

The last round of tariffs imposed by the White House, in July, affected around $50bn of mostly agricultural and industrial products, as the Trump administration sought to shield voters from a direct hit to their wallets.

That will be almost impossible to avoid this time round. The new measures will affect a range of imports from salmon to baseball gloves to bamboo mats — forcing US companies to scramble for suppliers outside China, absorb the import taxes themselves or, most likely, pass the cost on to customers.

Some major companies have been exempted – including Apple, FitBit and manufacturers of child safety equipment such as bicycle helmets.

But if Mr Trump decides to expand tariffs further – what he calls “phase three” of measures against Beijing – there are likely to be no such exemptions.

It is a high risk strategy which the US is pursuing in protest against both its trade deficit with China and Beijing’s “Made in China 2025” programme which, Washington says, involves Chinese companies stealing American technologies to manufacture high-end goods.

“We have been very clear about the type of changes that need to be made, and we have given China every opportunity to treat us more fairly,” Mr Trump said in a statement. “But so far, China has been unwilling to change its practices.”

The last promising talks between the two nations were in May, when US treasury secretary Steven Mnuchin and Chinese vice premier Liu He brokered a truce around a Chinese offer to buy more American farm products and liquefied natural gas. Mr Trump quickly distanced himself from the agreement.

China is reviewing plans to send a delegation to Washington for fresh talks in light of the latest US action, the South China Morning Post reported on Tuesday, citing a government source in Beijing.

Fixing the US deficit with global trade partners was one of Mr Trump’s key presidential election campaign messages but has not proved easy, leading to strained relations with potential allies including the EU, Canada and Mexico over raised tariffs on imported steel and aluminium.

Fang Xinghai, vice chairman of China’s securities regulator, said at a conference in the port city of Tianjin: “President Trump is a hard-hitting businessman and he tries to put pressure on China so he can get concessions from our negotiations. I think that kind of tactic is not going to work with China.”

Economists think the tariffs could put a dent in consumer spending as customers baulk at seeing the prices of iPhones rise, though some told the Reuters news agency they believe the impact on the US economy will be minimal.

Nonetheless, the results of a trade war should not be underestimated by the public, said Matthew Shay, chief executive of the US’s National Retail Federation. He said: “The mere talk of tariffs on all remaining Chinese imports is of serious concern to retailers, since tariffs of that magnitude would touch every aspect of American life.”

Additional reporting by agencies

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