Levies target 1,300 separate product categories
The Trump administration on Tuesday threatened to slap stiff tariffs on some $50 billion in Chinese imports across 1,300 categories of products, unveiling the most aggressive challenge in decades to Beijing’s trade practices.
The imports targeted for 25% levies range from high value-added goods such as medicines and medical equipment to intermediate goods like machine tools and chemicals, according to a release by the U.S. Trade Representative.
The list also includes some consumer goods such as dishwashers, televisions and automobile parts, but doesn’t include retail mainstays such as shoes, clothing, mobile phones and furniture—products that might cause a U.S. consumer backlash should the tariffs push up prices at American retail outlets.
The move drew swift condemnation from Beijing.
“Such unilateralistic and protectionist action has gravely violated fundamental principles and values” of the World Trade Organization, the Chinese embassy in the U.S. said in a statement, adding that China will use the WTO dispute settlement process and “take corresponding measures of equal scale” against U.S. products.
None of the tariffs goes into effect immediately—and may never be imposed if the two sides eventually agree on a deal to open China further to U.S. imports. Instead, U.S. companies have until May 22 to raise objections; a public hearing on the issue is scheduled for May 15 in Washington.
The latest round of tariff threats is in addition to the imposition recently of 25% tariffs on Chinese steel and 10% tariffs on aluminum. Japan also was hit with the steel and aluminum tariffs; most nations got temporary exemptions. On Sunday, China retaliated with its own levies on about $3 billion of U.S. agricultural goods in that dispute.
The Trump administration’s moves represent a significant change in U.S. strategy for dealing with China. Over the past three administrations, the U.S. has ushered China into the WTO, facilitating its ability to attract investment. Afterwards, it negotiated painstaking agreements with Beijing to open up specific parts of the Chinese economy. U.S. officials and Chinese reformers felt such change would be in the interest of both nations.
Now, the administration sees such talks as having produced too little for the U.S. So instead, the U.S. is applying maximum pressure and pushing China to negotiate under the threat of heavy sanctions.
“The China experts don’t have a good solution to get us out of this fix, apart from more high-level dialogues,” said Warren Maruyama, a former Bush USTR general counsel, defending the administration’s move. U.S. Trade Representative Robert Lighthizer “might as well take his shot,” Mr. Maruyama said.
Last year, the U.S. ran a $375 billion merchandise goods trade deficit with China; President Donald Trump has said he wants that reduced by $100 billion. While U.S. markets rebounded on Tuesday, they have been volatile for weeks in part because of fear the Trump administration policies might lead to a trade war between the world’s two largest economies.
News of the tariffs was released after the close of regular trading on the stock exchanges Tuesday.
“We intend to get along with China, but we have to do something very substantial about the trade deficit,” said Mr. Trump, speaking at the White House earlier on Tuesday. “I campaigned on that, I talked about that.”
The USTR said the size of the punitive tariffs targeting the Chinese economy “is commensurate with an economic analysis of the harm caused by China’s unreasonable technology transfer policies to the U.S. economy.” Washington worries that Chinese cyberespionage and unfair government subsidization is helping China leapfrog technology and can eventually put the U.S. at a disadvantage both militarily and economically.
China denies it engages in unfair or illegal activities.
U.S. companies have grown increasingly concerned about Beijing using regulations and market pressure to force them into joint ventures with Chinese counterparts, which in turn lead to the transfer of important, competitive technology to their Chinese partners. They also worry, however, that tariffs on Chinese goods will make matters worse, driving up business costs and sparking retaliation from Beijing.
“If history is any indication, these proposed tariffs will not work and will be entirely counterproductive,“ said Dean Garfield, president of the Information Technology Industry Council, a trade group. Jay Timmons, president of the National Association of Manufacturers, said, “tariffs also run the risk of provoking China to take further destructive actions against American manufacturing workers.”
Beijing is widely expected to put together its own list shortly for retaliation. That is likely to include U.S. exports of aircraft and soybeans among other products. Cui Tiankai, Chinese ambassador to the U.S., said in an interview with state-run CGTN English news channel Tuesday, “We will certainly take countermeasures of the same proportion and the same scale, same intensity.”
Behind the U.S. action is a growing concern the Chinese are using industrial policy, government subsidies, theft and subterfuge to obtain U.S. technology. The U.S. tariff memorandum specifically mentions Beijing’s “Made in China 2025” report, released in 2015, which is a blueprint for making China a world leader in a number of technology areas, including robotics, semiconductors and electric vehicles.
The proposed tariffs are meant to blunt that activity, although some high-tech analysts noted that some big ticket electronics were exempted, including personal computers, laptops and much telecommunications equipment.
Among the products that USTR proposed to be hit with levies are aircraft engines, industrial robots, some semiconductor production equipment, and electric vehicles.
However, some observers said their impact, at least at first, is likely to limited. Tariffs on $50 billion to $60 billion of goods would “not be a massive macroeconomic shock,” said Chad Bown, senior fellow at the Peterson Institute for International Economics, but “the bigger worry is we don’t have any sense for where this ends,” especially if China retaliates in a similar fashion, he said.
A trade war, though, is hardly inevitable. The U.S. has at least 180 days after the comment period to decide whether to impose any tariffs, giving plenty of time for negotiations. Chinese economic envoy Liu He recently exchanged letters with Mr. Lighthizer and U.S. Treasury Secretary Steven Mnuchin over increased opening of the Chinese market, and the two sides are believed to be discussing a cut in Chinese tariffs on imported cars and opening Beijing’s financial market to U.S. firms.
Chinese regulators are working toward giving foreign firms majority control of Chinese securities firms as soon as June, according to people familiar with the matter, in a follow-through on a financial-opening plan announced in November. China has also discussed buying semiconductors from U.S. companies rather than Japanese or South Korean ones.
Mr. Mnuchin is also weighing a trip to Beijing to talk with Mr. Liu, although there are divisions in the U.S. government as to whether that would be showing weakness at a time when the U.S. wants to amp up pressure on China.
One place the U.S. will be searching for clues about Chinese intent: Chinese leader Xi Jinping will speak next week at Boao Forum, an annual gathering of world political and business leaders on the southern Chinese island of Hainan. Mr. Xi is expected to reaffirm Beijing’s commitment to economic liberalization and announce more market-opening measures, Chinese officials say.
Some senior Chinese officials, in talks with some U.S. visitors, have said they feel confident that they could prevail in a trade war with the U.S. and ascribe much of the U.S. action to Mr. Trump’s need to show toughness before the mid-term elections.
Tao Wang, chief China economist at UBS, says China’s economy could be damaged notably if tariffs are imposed. A 10% U.S. tariff on all Chinese exports to the U.S. will lead to a two-percentage-point drop in China’s total export growth, which then would cause a 0.3-to-0.4-percentage-point decline in China’s GDP, which grew 6.9% in 2017, she says. In the past year, strong foreign demand has helped China keep growth on track as the country continues to battle with debts and industrial overcapacity.
Adam Slater, lead economist for Oxford Economics, said that tariffs on China goods could easily ripple through U.S. corporate supply chains and have results that are difficult to predict.
“An escalation of U.S. tariffs into major import products like telecoms, electronics, would have large negative spillover effects for other Asian economies,” Mr. Slater said.