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China Retaliates With Tariffs on $60 Billion of U.S. Goods

The Wall Street Journal. logoThe Wall Street Journal. 2018-09-18
Donald Trump wearing a suit and tie © Evan Vucci/Associated Press

The Chinese government announced plans Tuesday to impose new tariffs on $60 billion in U.S. exports, prompting President Trump to reiterate a threat to punch back by hitting Chinese goods worth more than four times that much.

Beijing also weighed whether to stick with plans for upcoming bilateral talks aimed at easing the conflict of retaliation and counter-retaliation, escalated by President Trump’s Monday announcement of new import taxes on $200 billion in Chinese goods.

Mr. Trump responded to China’s $60 billion pledge later Tuesday by declaring that “if there’s retaliation against our farmers and our industrial workers and our ranchers, if any of that goes on we are going to kick in another $257 billion.” He added: “We don’t want to do it, but we’ll probably have no choice.”

People familiar with administration plans said they expected Mr. Trump to issue a formal statement over the next few days directing U.S. Trade Representative Robert Lighthizer to begin the process of crafting the next tranche of tariffs that, if fully implemented, would cover virtually all imports of Chinese goods, which totaled $505 billion in 2017.

While the threat of more tariffs might intensify the rhetorical pressure on Beijing, these people stressed, the actual administrative process—including holding public hearings, receiving written public comments, and conducting internal impact studies—would take weeks before any fresh measures would take effect.

Mr. Trump Tuesday told reporters he was eyeing tariffs on an additional $257 billion in Chinese goods, but the statement he issued on Monday said it was $267 billion. An administration official said the White House statement citing the $267 billion figure accurately described the policy.

The next round would be far more politically and economically perilous, covering a range of consumer goods—from electronics to toys—that have largely been spared so far.

Further tariffs may be meted out in stages and may not extend to all imports. People familiar with the process noted that the U.S., in response to industry complaints, took nearly 300 products off the list of those subject to the tariffs announced this week, saying that shows an openness to arguments that duties would cause too much pain in specific circumstances.

One factor that could shape the path of future tariffs would be whether the countries resume high-level trade talks. Such talks were launched in the spring after Mr. Trump first threatened taxes on Chinese goods, but broke off after the U.S. implemented a first round of duties in July.

Treasury Secretary Steven Mnuchin has been trying to restart the discussions, and a series of Washington visits by Chinese officials had been scheduled for the next few days.

Shortly after the White House’s announcement late on Monday, the Chinese leadership’s economic troubleshooter, Vice Premier Liu He, huddled with his top lieutenants to devise a response, according to officials briefed on the matter. On the agenda was whether Mr. Liu or lower-level officials should go ahead with those travel plans. China’s Commerce Ministry, in a brief statement midday Tuesday, said the U.S. tariffs create “new uncertainty” for negotiations.

The Chinese leadership faces a dilemma as the world’s two largest economies pitch closer to a full-bore trade war. President Xi Jinping has banked his popularity and strongman reputation on turning China into a global power and can’t afford to back off, instructing officials to stand firm and punch back in negotiations.

Yet Mr. Xi has also ordered his officials to keep engaging with Washington and American businesses, according to Chinese officials and government advisers, a stance seen as addressing concerns that a spiraling trade fight could harm an already slowing economy and derail China’s economic growth prospects.

An option being considered, the officials said, involves sending a lower-level trade official—Vice Minister of Commerce Wang Shouwen—for talks this month, sparing Mr. Liu. Under the original plan, lower-level talks were to take place this week ahead of Mr. Liu’s trip to Washington late next week. As of late Tuesday, no final decisions were made on the issue, according to the officials.

An ally of Mr. Liu’s vented Tuesday about the pressure from Washington. “Negotiations can’t be done with this kind of tactic,” Fang Xinghai, vice chairman of the China Securities Regulatory Commission, said at a World Economic Forum meeting in the coastal city of Tianjin.

“It may work with some small country,” he said. “It doesn’t work with China.” The new U.S. tariffs, he added, have “poisoned the atmosphere for negotiations.”

Voices have been rising in Chinese policy circles in recent weeks saying that Beijing should wait to negotiate until after the November midterm elections. Many Chinese officials think President Trump isn’t ready to cut a deal, is bashing China now to appeal to his political base and may be more willing to negotiate after the elections.

Mr. Trump signaled in a pair of tweets Tuesday that he would seek to use Chinese retaliation to rally his supporters in the fall campaign, portraying Beijing’s tariffs as a policy of “actively trying to impact and change our election by attacking our farmers, ranchers and industrial workers because of their loyalty to me.”

For all of Mr. Trump’s rhetoric, his advisers say they are aware of the perils of moving forward quickly with tariffs on the remaining Chinese imports. They note that it took two months from the presidential order to explore tariffs on $200 billion to putting them in effect.

The trans-Pacific commercial conflict was launched in March, when the Trump administration issued the results of an investigation accusing China of unfair trade practices, especially pressuring American companies to turn over valuable intellectual property to gain access to the Chinese market.

Mr. Trump used that study to justify tariffs on Chinese imports, part of a broader effort to pressure Beijing to change those practices and to take steps to cut its trade surplus with the U.S., which totaled $336 billion last year.

While both sides exchanged tariff threats through the spring, they held off on executing those threats, as Messrs. Liu, Mnuchin, and others held a series of talks aimed at staving off the duties. After those meetings ended inconclusively, Mr. Trump followed through over the summer with a first round of tariffs on $34 billion in Chinese goods, then a second round on $16 billion.

The Chinese each time responded with tariffs on an equal amount of U.S. goods. Following each round of China retaliation, Mr. Trump directed Mr. Lighthizer to launch the process for imposing tariffs on still more Chinese goods. That led to the president’s June 18 order to explore a third tranche of tariffs on $200 billion in Chinese goods—the process that ultimately led to this week’s announcement finalizing those tariffs, to take effect Sept. 24.

With China’s Tuesday announcement of its own third round, the cycle is now repeating itself, with Trump aides readying new retaliation to the retaliation.

Mr. Trump feels he has the upper hand in that fight because the U.S. imported more than $500 billion in Chinese goods last year, while China imported just $130 billion from the U.S., meaning Beijing is running out of U.S. products to penalize.

Write to Lingling Wei at lingling.wei@wsj.com and Jacob M. Schlesinger at jacob.schlesinger@wsj.com

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