China vows to retaliate after Trump's $200bn tariff hit

China vowed to retaliate after the Trump administration said it would impose a 10% tariff on about $200bn in Chinese goods next week and more than double the rate in 2019.

The statement from the Ministry of Commerce didn’t note specific actions, though China has previously said it would retaliate with levies on $60bn worth of US goods.

Such a move risks deepening the standoff, with President Donald Trump saying in a statement on Monday the US would immediately pursue further tariffs on about $267bn of Chinese imports if Beijing retaliates.

On a panel at meetings of the World Economic Forum (WEF) in Tianjin, Fang Xinghai, vice chairperson of China’s Securities Regulatory Commission, said China won’t be pressured by Trump’s trade tactics and talked up the economy’s strength.

While he estimated a negative hit to China’s GDP growth of about 0.7 percentage points if the US goes ahead with tariffs on all China exports to the US, Fang also said he’s confident that relations between both countries can normalise and said he hopes both sides can negotiate on an equal basis.

"It is good for the US economy to have good relations with China and good for the rest of the world," he said. "President Trump, as shown in the North Korean affair, is able to revert himself very quickly. I think we have to take that into account."

Trade war impact on China

The Trump administration is giving American businesses a chance to adjust and look for alternative supply chains by delaying an increase of the tariff to 25% on January 1 for the $200bn batch of Chinese goods, according to two senior administration officials who briefed reporters on Monday.

The 10% tariff will take effect on September 24.

"For months, we have urged China to change these unfair practices, and give fair and reciprocal treatment to American companies," Trump said.

"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. But, so far, China has been unwilling to change its practices."

Smart watches, playpens

Smart watches and Bluetooth devices were removed from the tariff list, along with bicycle helmets, high chairs, children’s car seats, playpens and certain industrial chemicals. They were among 300 tariff lines scrubbed from the preliminary target list released in July, according to one of the officials. No items were added, the officials said.

Trump continues to ratchet up pressure on Beijing to change its trade practices even as he floats the idea of talks.

Business leaders are warning the high-stakes strategy could upend their supply chains and raise costs, as economists worry Trump’s tactics could derail the broadest global upswing in years.

The US Chamber of Commerce, retailers, agricultural groups and some members of Trump’s own Republican party have spoken out against his tariff campaign. It’s also divided his advisers between China hawks like US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, a former Wall Street banker who is seeking a trade deal.

"It appears that the administration responded to some industry concerns, but for many American businesses and consumers this still represents a rapid acceleration of costs and much higher uncertainty," said Rufus Yerxa, president of the National Foreign Trade Council.

"Business hates uncertainty. They’d rather have an imperfect trading relationship than this much chaos."

The administration earlier this month floated the idea of talks led by Mnuchin, with Liu He expected to lead the Beijing delegation.

"The best way forward is an imminent return to results-oriented negotiations, William Zarit, chairman of the American Chamber of Commerce in China, said in a statement.

"However, US companies in China have faced real and legitimate concerns for many years and so any future discussions must be based on fair and reciprocal treatment and address the need for sustainable structural reforms."

With the latest tariff escalation, American consumers could start feeling the cost in everyday goods. It brings all Chinese imports subject to added tariffs to $250bn, roughly half of China’s shipments to the US last year.

The Trump administration in July and August already imposed 25% tariffs on $50bn on Chinese goods, sparking in-kind retaliation.

Additional tariffs on $267bn of imports from China would push the cumulative total beyond the amount of goods the US bought from the Asian nation last year.

Officials in the region warned about the trade war’s impact. Japan’s Finance Minister Taro Aso said it will impact other countries while Australia’s central bank warned that "significant tensions" around trade policy are a "material risk" to the global outlook, it said in minutes of the September policy meeting released Tuesday in Sydney.

Working out

Trump told reporters earlier on Monday his impression is that Beijing wants to talk about a deal, and that he thinks "it’s going to work out very well with China".

Officials from both countries have met four times for formal talks, most recently in August, when Treasury’s undersecretary for international affairs, David Malpass, led discussions in Washington with Chinese Vice Minister Wang Shouwen.

White House economic adviser Larry Kudlow has indicated that Trump could be willing to meet face-to-face with Xi to smooth over trade tensions at the United Nations General Assembly later this month or at the Group of 20 nations leaders’ summit in Argentina from November 30 to December 1.

The White House has sought to pressure Beijing to reduce its trade surplus with the US and protect intellectual property rights of American companies, which it says are abused in China.

The administration revised the list of goods that will be hit by tariffs following a commentary period and public hearings last month.

"We’re looking at quite treacherous waters here which could considerably destabilise global economic confidence and threaten a future recession," former European trade commissioner, Peter Mandelson told Bloomberg Television. "That’s how serious the stakes are now."

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