By David J. Lynch
WASHINGTON - President Donald Trump embarked Thursday on the sharpest trade confrontation with China in nearly a quarter-century, moving toward imposing tariffs on $60 billion in Chinese goods and limiting China’s freedom to invest in the U.S. technology industry.
The Chinese government fired back hours later, threatening to hit $3 billion in U.S. goods with tariffs. Trump’s announcement was “typical unilateralism and protectionism,” China’s Commerce Ministry said in a statement, and it had set a “very bad precedent.”
“China does not want to fight a trade war, but it is absolutely not afraid of a trade war,” it said in a statement issued Friday morning in Beijing. “We are confident and capable of meeting any challenge. It is hoped that the U.S. side will be able to make a swift decision and not to drag bilateral economic and trade relations into danger.”
Trump’s actions - which sent stocks to their biggest one-day drop in six weeks - followed a government finding that China had treated U.S. companies unfairly by coercing them into surrendering trade secrets for market access.
“We’re doing things for this country that should have been done for many, many years,” the president said at the White House.
Trump directed U.S. Trade Representative Robert Lighthizer to propose within 15 days tariff increases designed to compensate the United States for lost profits and jobs. After a comment period, the list, targeting Chinese products that benefited from U.S. technology, will be made public.
But even as he confronted China over technology, Trump weakened a new tariff meant to protect U.S. production of industrial metals, potentially exempting the European Union, Brazil and other countries accounting for two-thirds of steel imports and more than half of foreign-made aluminum.
By challenging China, Trump rejected the approach of his Republican and Democratic predecessors, gambling that China will bend before he does. “We don’t know how this is going to turn out,” said Scott Kennedy, director of the project on Chinese business at the Center for Strategic and International Studies. “It could be resolved in a few months, or it could spiral out of control into a broader strategic rivalry.”
Early reviews were not good. On Wall Street, the benchmark Dow Jones industrial average plunged more than 700 points, or almost 3 percent, as investors blanched at the prospect of a trade war between the world’s two largest economies.
“There’s a lot of concern about this administration’s shoot-first approach,” said Josh Bolten, president of the Business Roundtable. “The victims of the actions that the administration is proposing to take are principally Americans.”
Hours after Trump’s announcement, China’s commerce ministry gave the first indication of potential targets for retaliation, saying it had compiled a list of 120 products worth nearly $1 billion, including fresh fruit and wine, upon which it would impose a 15 percent tariff if the two countries fail to resolve their trade differences “within a stipulated time.”
The department did not specify a deadline and said that a 25 percent tariffs on other goods, including pork and aluminum, could be imposed “after further evaluating the impact of U.S. measures on China.”
Trump is betting that disrupting the traditional U.S. approach to China will yield a better commercial bargain for American businesses and workers than the status quo that he blames for hollowing out American industry.
Among U.S. politicians and business leaders, there is broad agreement that China has violated U.S. intellectual property rights through restrictive licensing arrangements in China and outright cybertheft in the United States.
But Thursday’s actions threaten to unravel global supply chains, increase costs for consumers and open the door to Chinese retaliation against U.S. farmers and businesses.
“The biggest and most powerful American companies are stuck in the middle,” said James McGregor, APCO Worldwide’s chairman for greater China. “They’re schizophrenic now. They don’t want today’s business to be eliminated. But they know China’s plan for tomorrow is to eliminate them in the Chinese market and then take them on globally.”
At $60 billion in affected products, Trump’s China actions carry a bigger punch than the tariffs on $46 billion in steel and aluminum imports that he announced March 8.
The impact of those earlier levies may shrink further: Lighthizer told the Senate Finance Committee on Thursday that products from the European Union, Australia, Argentina, South Korea and Brazil will not be affected when the tariffs go into effect on Friday while negotiations over potential exemptions continue.
Trump already had exempted Canada and Mexico from the import levies for the duration of talks aimed at renegotiating the North American Free Trade Agreement.
The United States last adopted this sort of uncompromising approach in a 1995 dispute over intellectual property rights. China ultimately acceded to U.S. demands, but today its economy is almost 17 times as big, making it less vulnerable to American pressure.
A Sino-U.S. trade war would affect economies that account for roughly 40 percent of global output, which explains the mounting apprehension on Wall Street.
“Trump’s economics team blew it,” economist Chris Rupkey of MUFG Union Bank wrote in a research note. “Tariffs mean a trade war and the news has the world’s investors running for the exits.”
The president blamed China for the loss of 60,000 factories and 6 million jobs, a number that most economists say blends the impact on U.S. employment of both Chinese competition and automation.
Trump said that unfair Chinese trade practices are responsible for the yawning U.S. trade deficit with China, which has reached a record $375 billion on his watch.
“Any way you look at it, it’s the largest of any country in the history of our world,” the president said. “It’s out of control.”
The White House expects the new taxes, which could reach up to 1,300 specific imports, will have a “minimal impact” upon consumers. But even business groups that support the goal of requiring changes in Chinese industrial policy voiced opposition to the tariffs.
“There is no way to impose $50 billion in tariffs on Chinese imports without it having a negative impact on American consumers. Make no mistake, these tariffs may be aimed at China, but the bill will be charged to American consumer who will pay more at the checkout for the items they shop for every day,” said Hun Quach, vice president for international trade at the Retail Industry Leaders Association.
Trump and his aides provided varying estimates of the value of the Chinese goods at issue. The president referred in his Roosevelt Room remarks to “about $60 billion,” while a senior White House aide who briefed reporters two hours before the president put the figure at “about $50 billion.”
The official cannot be identified under the ground rules for such White House briefings.
Trump also ordered Lighthizer to complain to the World Trade Organization about China’s discriminatory licensing practices for foreign companies, an effort that U.S. officials hope will draw support from American allies in Europe and Japan.
The president described the actions against China as part of a broader reappraisal of U.S. global relationships, featuring a willingness to use tariff threats to force concessions from trading partners.
“We will end up negotiating these things rather than fighting over them,” Commerce Secretary Wilbur Ross said, in an apparent reference to fears of a trade war.
The president also alluded to political calculations, saying that voter concerns over economic losses from bad trade deals was “maybe one of the main reasons” he won the White House.
“The era of economic surrender is over,” Vice President Mike Pence added.
Trump’s actions won plaudits from Democrats such as Sen. Sherrod Brown, Ohio.But they drew fire from the conservative National Taxpayers Union’s Bryan Riley, who called the proposed China tariffs “self-destructive and reckless.”
Under the measures targeting Beijing announced Thursday, Treasury Secretary Steven Mnuchin will draw up new investment restrictions to address concerns about Chinese investors, including state-sponsored investment funds acquiring U.S. companies to gain access to their technology.
“The end objective of this is to get China to modify its unfair trading practices,” said Everett Eissenstat, deputy assistant to the president for international economic affairs.
Since the president took office 14 months ago, his remarks on China have swung between effusive praise for Chinese President Xi Jinping and tough talk about its trade practices. In recent months, Trump has adopted an increasingly bellicose tone, with the White House billing Thursday’s actions as “targeting China’s economic aggression” and the president’s trade agenda released in February labeling the country a “hostile” economic power.
“China is engaged in practices which harm this country,” said Peter Navarro, director of the White House Office of Trade and Manufacturing Policy.
Trump’s trade moves potentially mark a sharp break with decades of growing U.S. economic engagement with China, which began in the late 1970s as the country emerged from Maoist autarky.
Years of commercial delegations and diplomatic dialogue saw trade between the two countries mushroom to $635 billion from $116 billion in 2000. Yet at the same time, U.S. companies complained about strict restraints on their operations in the Chinese market. Government regulations typically limited them to a minority stake alongside a local partner.
The administrations of George W. Bush and Barack Obama sought to persuade the Chinese to embrace more fully a market-oriented policy. Through 2013, when a high-level Communist Party conclave proclaimed a “decisive role” for the market and officials promised to pare back the state’s role in the economy, U.S. officials believed China was headed in the right direction.
“That process has failed,” Navarro said.
Trump administration officials say that China’s economic policies are distorting global markets for key products such as steel and threaten to have the same effect on more advanced industries such as semiconductors and artificial intelligence.
“China benefits far more from the U.S.-China relationship than the U.S. does,” Navarro said.