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U.S. Readies New Tariffs as Trump Says He'll Meet China...

Business Maverick

Business Maverick

U.S. Readies New Tariffs as Trump Says He’ll Meet China’s Xi

US President Donald J. Trump (R) and Hungarian Prime Minister Viktor Orban during their meeting in the Oval Office of the White House in Washington, DC, USA, 13 May 2019. EPA-EFE/Szilard Koszticsak HUNGARY OUT
By Bloomberg
14 May 2019 0

The U.S. prepared to hit China with new tariffs even as President Donald Trump said he’ll meet his Chinese counterpart, Xi Jinping, at next month’s G-20 summit, an encounter that could prove pivotal in a deepening clash over trade.

The U.S. Trade Representative’s office Monday released a list of about $300 billion worth of Chinese goods including children’s clothing, toys, mobile phones and laptops that Trump has threatened to hit with a 25% tariff.

If Trump proceeds with the tariffs, it would see almost all imports from China covered by punitive import duties. It also would turn the president’s trade wars into a tangible reality for many Americans and their pocketbooks as he seeks re-election.

Under a process outlined by U.S. officials, the new tariffs would not take effect until late June at the earliest. But that could come just as Trump meets with Xi on the sidelines of a Group of 20 leaders meeting June 28-29 in Osaka, Japan, raising the stakes in an already escalating trade war.

Read more – How the U.S.-China Trade War Got to This Point: QuickTake

Trump on Monday warned Beijing not to go too far in responding to U.S. trade actions after China rolled out its retaliation to his move to hike import duties on a separate $200 billion tranche of imports from China last week.

“There can be some retaliation, but it can’t be very substantial,” Trump told reporters Monday at the White House during a meeting with Hungarian Prime Minister Viktor Orban.

Later in the day, Trump said it would become apparent “in about three or four weeks” whether trade talks with China were successful.

“You never really know, right?” Trump said at an Iftar dinner at the White House. “But I have a feeling it’s going to be very successful.”

U.S. stocks dropped on signs of an escalating trade war, with the S&P 500 falling the most in four months. Treasuries rallied with the yen on demand for haven assets.

The release of the additional tariffs list and the continuing escalation it signals drew an outcry from business groups who have been lobbying against the duties. USTR said that the new tariffs would not apply to pharmaceuticals or rare earths.

“We support the administration’s efforts to deliver a meaningful trade agreement that levels the playing field for American businesses and workers,” Matthew Shay, president and CEO of the National Retail Federation, said in a statement. “But the latest tariff escalation is far too great a gamble for the U.S. economy.”

Economists have warned that the existing tariffs would hurt U.S. growth. But they are also worried an escalation to cover all trade from China and the Chinese retaliation it would provoke would do far more damage and could even tip the U.S. economy into recession.

China’s announcement earlier Monday of its plans to raise duties on some $60 billion in American imports starting June 1, defied a call from Trump to resist escalating the trade war.

Less than two hours after Trump tweeted a warning that “China should not retaliate — will only get worse!” the Ministry of Finance in Beijing unveiled the measures on its website. The new rate of 25% will apply to 2,493 U.S. products, with other goods subject to duties ranging from 5% to 20%, it said.

Inflation Effect

Higher U.S. tariffs will drive up the Federal Reserve’s preferred measure of underlying inflation, and further escalation could raise consumer prices even more and dent U.S. growth, Goldman Sachs Group Inc. economists said in a research note.

China’s move to hike tariffs came in response to the U.S.’s decision last week to increase levies on $200 billion in Chinese imports to 25% from 10%. Trump on Monday accused China of backing out of a deal that was taking shape with U.S. officials, saying Beijing reneged on an agreement to enshrine a wide range of reforms in Chinese law.

“I say openly to President Xi & all of my many friends in China that China will be hurt very badly if you don’t make a deal because companies will be forced to leave China for other countries,” Trump wrote on Twitter. “You had a great deal, almost completed, & you backed out!”

Analysis: New Tariffs to Hit U.S. Consumers, China May Further Ease Policy

China has said it will retaliate against any further increases in tariffs. But it also has been careful to calibrate its response. The Chinese list released Monday matched Trump’s latest move in that it simply hikes the duties on a list of thousands of items that had already been targeted in an earlier phase of the trade war.

Beijing’s retaliation on about $60 billion of U.S. goods includes extra tariffs of as much as 25% on goods ranging from small aircraft, computers, and textiles to chemicals, meat, wheat, wine and LNG. Some auto parts remain exempted from retaliatory charges. Imports of cars aren’t affected, as an extra duty of 25% from a separate list was suspended during the negotiations as a sign of goodwill.

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