China urges US to "pull back from brink" as Trump unveils tariffs

China urges US to "pull back from brink" as Trump unveils tariffs

Fri, 23/03/2018 - 11:38
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U.S. President Donald Trump, flanked by Lockheed Martin CEO Marillyn Hewson (L), Commerce Secretary Wilbur Ross (2nd R) and U.S. Trade Representative Robert Lighthizer (R), delivers remarks before signing a memorandum on intellectual property tariffs on high-tech goods from China. Photo: Reuters

 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 moved 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 US intellectual property. A probe was launched last year under Section 301 of the 1974 US Trade Act.

"China doesn't hope to be in a trade war, but is not afraid of engaging in one," the Chinese commerce ministry responded in a statement.

"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 Mr Trump's allegations on intellectual property theft and forced technology transfers.

Though the White House has said the planned tariffs were a response to China's "economic aggression", Mr Trump said he views China as "a friend", and both sides are in the midst of negotiations. A Chinese commerce ministry official said both sides were in touch, and communication channels were smooth.

Meantime, China showed readiness to retaliate by declaring plans to levy additional duties on up to $3 billion of US imports including fresh fruit, wine and nuts in response to imports tariffs Trump announced earlier this month on steel and aluminium, which were due to go into effect on Friday.

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 2.45 per cent, tracking a large overnight fall in Wall Street shares, Shanghai shares shed 3.8 per cent and Japan's Nikkei lost 4.5 per cent, while perceived safe havens such as government bonds gained.

"The upshot is that today's (US) 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 per cent of its total gross domestic product, and the $50 billion to $60 billion targeted by the US tariffs contributed just around 0.25 per cent.

Mr Trump, however, appears intent on fulfilling election campaign promises to reduce the record US trade deficit with China. A commentary published by the official Xinhua news agency said the United States had adopted a "Cold War mentality", and "panic" over China's economic rise was driving Washington's confrontational approach.

US multi-nationals at a business gathering in Shanghai were warned by Stephen Roach, a Yale University economist, "to prepare for the worst" and make contingencies until calmer heads prevail.

Mr Roach said he could foresee "the Chinese government moving to restrict, in some form or another, the financial as well as the supply chain activities of American companies operating in this country".

LOW-HANGING FRUIT

Alarm over Mr Trump's protectionist leanings mounted earlier this month after he imposed hefty import tariffs on steel and aluminium under Section 232 of the 1962 US Trade Expansion Act, which allows safeguards based on national security.

On Friday, Mr Trump gave Canada, Mexico, Argentina, Australia, Brazil and South Korea and the European Union temporary exemptions. China was not exempted even though it was a far smaller supplier than Canada or South Korea.

Also omitted from the exemption list was US ally Japan, though a government spokesman said Tokyo would press to be included. And Finance Minister Taro Aso expressed empathy with Washington regarding the importance of protecting intellectual property.

China's retaliation against the US tariffs on steel and aluminium appeared restrained.

Targeting $3 billion of US imports, China has drawn a list of 128 US products that could be hit with tariffs if the two countries are unable to reach an agreement on trade issues, the ministry said.

The commerce ministry said China was considering implementing measures in two stages: first the 15 per cent tariff on 120 products including steel pipes, dried fruit and wine worth $977 million, and later, the higher 25 per cent tariff on $1.99 billion of pork and recycled aluminium.

US wine exports to China last year were $79 million, according to data from the US Wine Institute, which represents Californian wine makers.

The fruit growers of California, Florida, Michigan and Washington all stood to lose as China's list also included close to 80 fruit and nut products. US 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.

"With the restrained response, China hopes Mr Trump can realise his errors and mend his ways," said Xu Hongcai, deputy chief economist at the ChinaCentre for International Economic Exchanges, a Beijing think tank.

"If we really want to counter, the strongest response would be to target soybean and automobiles," said Mr Xu. "China is 'drawing its bow but not firing. We still have some cards to play."

(Additional reporting by Wang Jing, Lusha Zhang, John Ruwitch, Elias Glenn, Dominique Patton, Josephine Mason, Meng Meng and Tom Daly; Editing By Simon Cameron-Moore)