BEIJING — China has warned of retaliation if President Trump goes through with his threat to raise tariffs on Chinese goods on Friday, setting up a potential escalation in a protracted trade war that was thought to be coming to an end.
The warning late Wednesday — issued as China’s vice premier and chief trade negotiator headed to Washington for trade talks — signaled that Beijing was prepared to raise tariffs on American products in response to Trump’s threats.
“An escalation in trade frictions is not in line with the American or Chinese interests or the interests of the world, and would thus be much to China’s regret,” a spokesman for the Commerce Ministry said in a statement on its website. “But if the U.S. goes ahead with its tariff measures against China, China will have to resort to necessary countermeasures.”
The two sides have at times seemed closed to sealing a deal, with Trump saying last month they were forging a “monumental” and “epic” pact.
The Trump administration has been pushing China not just to narrow its trade gap with the United States but also to institute major reforms on matters such as support for state-backed companies and intellectual property rights.
But Trump tweeted Sunday that China had attempted to renegotiate the almost-completed deal. He threatened to increase tariffs on $200 billion worth of Chinese goods from 10 percent to 25 percent on Friday and to levy a new 25 percent fee on the remaining $325 billion of “untaxed” Chinese imports “shortly” if there is no progress toward a trade deal.
This sudden shift sent markets tumbling Monday. They continued to fall Wednesday as investors bet on whether Trump would follow through with his threat and the year-long trade war would rumble on.
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Trump tries to get tough with China, but tariffs may imperil his leverage
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China has responded with reciprocal measures during earlier iterations of the trade war, slapping duty on American soybeans, cars and other products.
There is not much time to salvage a deal. Liu He, the lead Chinese negotiator, is set to meet with his American counterparts, Treasury Secretary Steven Mnuchin and Trade Representative Robert E. Lighthizer, for talks Thursday and Friday.
Still, Chinese authorities were trying to reassure markets and clearly still wanted to reach an agreement with the Trump administration.
China’s state media, which didn’t report Trump’s tweets for a full day, has now swung into action.
It appeared to be both defiant and preparing for the tariffs to take effect, even acknowledging that there are “thorny structural differences between China and the United States that are difficult to resolve at the moment.”
But the main message was one of strength and resilience.
“Tried and tested by the trade war for more than a year, entrepreneurs and ordinary people in China have learned to handle everything with grace and greater ease now,” state news agency Xinhua wrote in a commentary published Wednesday. “Chinese society has weathered storms and is now able to endure great stress. We have also learned that the world doesn’t end, as long as we keep our own house in order.”
China is capable of resolving multiple risks because of its “huge market” and “vigorous consumption,” the overseas edition of the People’s Daily, the mouthpiece of the Communist Party of China, said in a commentary on Wednesday.
“The current Chinese economy is like a vibrant, vast forest with a solid foundation, strong resilience, high quality and great potential, which can withstand the wind and rain from the outside environment as well as soaking up the bright sunshine of win-win cooperation,” the paper said.
Other state papers lauded China’s surprisingly strong growth figures for the first quarter, which showed a better-than-expected 6.4 percent expansion between January and March compared with a year ago. “Market confidence is picking up and positive factors are setting in,” the Guangming Daily declared on its front page Wednesday. “The Chinese economy has great resilience and huge potential.”
[Trump says he will increase tariffs on Chinese goods as he complains about pace of trade talks]
But the defiance in the state media notwithstanding, the statistics show a different story. Trade data released Wednesday showed that Chinese export growth was disappointing last month. The value of Chinese exports fell 2.7 percent in April compared with the previous year, against market expectations of 3 percent growth.
While the slump in domestic demand and exploding debt levels are the main reason for China’s slowing economy, the trade tensions are weighing heavily on it.
“If Trump follows through on his latest tariff threats, we think this would drag down export growth by two to three percentage points,” said Julian Evans-Pritchard, senior China economist at Capital Economics. “And even if a last-minute deal is struck this week to avoid further tariffs, the downbeat prospects for global growth will probably mean that export growth remains subdued,” he wrote in a note to clients.
China’s trade surplus narrowed sharply to $13.84 billion in April, according to data from the General Administration of Customs. This was far below the $32.65 billion recorded in March and against economists’ expectations that the surplus would grow.
There are other signs of trade-related stress in the world’s second-largest economy.
Buyer numbers and export orders were down during the three-week Canton Fair, organizers said when it wrapped up Sunday. The trade fair, China’s largest, is held in the manufacturing powerhouse in the south and is often viewed as a barometer for the health of the Chinese economy and foreign trade conditions.
Chinese media outlets reported Wednesday that the U.S. software company Oracle has laid off 900 of its 1,600 employees in China and planned to close its research and development center in the country. Oracle’s China office declined to comment.
But on social media, videos showed Oracle workers protesting outside its offices, demonstrating against redundancies while the company was profitable.
[After tariff threats, many Chinese see Trump as a Marvel villain out to destroy them]
Still, the reaction in the state media shows that Chinese authorities are trying not to let Trump’s threats derail the talks, said Kent Kedl, a China expert at Control Risks, a consultancy.
“I think there is a certain amount of resilience that the Chinese are building up to Trump’s tweets, and they realize that he uses them to release frustration and market to his base,” he said.
But the Chinese authorities understand that they have to have a deal, he said, although they may have an incentive to drag it out. “I think they feel that the closer they get to the election, the more Trump will be willing to accept a deal that is less harmful for the Chinese,” Kedl said, referring to the 2020 U.S. election.
The stakes are high for Chinese President Xi Jinping, who has a vision to make China a global superpower to rival the United States and who has asserted strong control over the ruling Communist Party, including by eliminating limits on his presidency.
“On some issues, Xi won’t budge, most obviously on the right for China to pursue policies to make its technological base competitive with the U.S. Any concessions here could be dangerous for him domestically,” said Richard McGregor, author of a book about the Communist Party and a China expert at the Lowy Institute in Sydney.
“But in other areas, it’s always been true that some of Xi’s advisers would like to use the trade talks as an excuse to push through reforms. The question is whether Xi goes along with them,” he said, referring to the structural reforms that the United States would also like to see, such as eliminating the special treatment for state-owned enterprises.
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https://www.washingtonpost.com/world/asia_pacific/china-warns-of-countermeasures-on-us-products-if-trump-boosts-tariffs/2019/05/08/f45c6cb6-718e-11e9-9331-30bc5836f48e_story.html
2019-05-08 17:50:13Z
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