Joe McDonald

US-China deal in flux after new tariff threat

BEIJING (AP) — President Donald Trump’s threat to escalate tariffs on Chinese goods has clouded prospects for a trade agreement, though preparations by Beijing’s envoys to still visit Washington this week are buoying hopes for some breakthrough to end the trade war between the world’s two largest economies. Beijing is “trying to get more information” after Trump’s announcement over the weekend that he would raise tariffs on $200 billion of Chinese imports from 10 percent to 25 percent on May 10, said a Foreign Ministry spokesman, Geng Shuang. Trump’s threat was seen as an effort to intensify pressure on Beijing to agree to a deal that would be to Trump’s liking. Stock markets initially plunged May 6 after Trump’s May 5 tweet over fears that China would abandon the latest round of talks in Washington, scheduled to resume May 8. U.S. stocks later regained some of their lost ground on hopes that the negotiations would proceed. Still, Geng offered no details on when exactly the talks would resume or who would join the Chinese delegation. He would not say whether Vice Premier Liu He, who has led China negotiators in previous rounds, will travel to Washington. The lack of details suggested that Beijing is wrestling with an internal conflict: Eager, on the one hand, to end a high-stakes trade fight that has battered Chinese exporters yet reluctant, on the other, to appear to bow to the Trump administration’s demands for far-reaching trade concessions. “We hope the United States will join efforts with China and we can meet each other halfway so we make a mutually beneficial agreement on the basis of win-win and mutual respect,” Geng said. The two governments have raised tariffs on hundreds of billions of dollars combined of each other’s goods in their dispute, which centers on the administration’s complaints about Chinese aggressive drive to achieve supremacy in global technology through illicit means. The confrontation has disrupted trade in goods ranging from soybeans to medical equipment. Trump threats Sunday to raise import taxes on $200 billion in Chinese products from 10 percent to 25 percent — and impose tariffs on $325 billion of additional imports, in effect covering everything Beijing ships to the United States — raised the stakes. His administration has already imposed 25 percent tariffs on $50 billion of Chinese imports, while Beijing has imposed penalties on $110 billion of American goods. On May 6, Trump stepped up his pressure, tweeting: “The United States has been losing, for many years, 600 to 800 Billion Dollars a year on Trade. With China we lose 500 Billion Dollars. Sorry, we’re not going to be doing that anymore!” During Asian stock trading, China’s main stock index plunged 5.6 percent and Hong Kong lost 2.9 percent. Market benchmarks in France and Germany sank 2 percent. On Wall Street, the Dow Jones Industrial Average The Dow Jones Industrial Average was down around 240 points, or 0.9 percent, in early-afternoon trading. It had been down as much as 471 in the first few minutes of trading. Previously, Trump had postponed deadlines for a trade agreement in an effort to buy more time for negotiations. But on May 5, he complained on Twitter that a deal with Beijing was coming “too slowly, as they attempt to renegotiate. No!” The suddenly combative rhetoric from Trump came as a surprise. For weeks, administration officials have been suggesting that negotiations were making steady progress. Michael Pillsbury, director of the Hudson Institute’s Center on Chinese Strategy and an adviser to the Trump White House, said the president’s tweets suggest that Chinese leaders “are trying to take back concessions they already made.” Trump had raised tariffs on Chinese imports last July 6 in response to complaints that Beijing steals or pressures foreign companies to hand technology. The administration and other trading partners also want Beijing to scale back plans for government-led creation of Chinese global competitors in robotics and other technology. They say those violate the communist government’s market-opening commitments. Both sides say they are making progress, but no details have been released. Beijing’s negotiators have agreed to narrow the politically sensitive Chinese trade surplus with the United States by purchasing more soybeans, natural gas and other goods. They have offered to change industrial strategies but have ruled out discarding them outright. Another sticking point is U.S. insistence on an enforcement mechanism with penalties in the event Beijing fails to stick to any commitments it makes. Economists suggested Trump may want to step up pressure because China’s economy is improving, reducing the urgency for Beijing to strike a deal. The latest quarter’s growth held steady despite a slump in exports to the United States. That suggested official efforts to reverse a downturn were gaining traction. “China may have appeared less willing to offer additional concessions,” said Citigroup economists in a report. Trump’s threat makes going ahead with talks “very difficult politically” for President Xi Jinping’s government, said Jake Parker, vice president of the U.S.-China Business Council. He said the Chinese public might “view this as a capitulation” if Beijing reached an agreement before Trump’s May 10 deadline. If Trump carries out his threat, American companies in China “would be very concerned” about official retaliation, said Parker. A Chinese decision to pull out of talks could have global repercussions, causing turmoil in financial markets and dragging on economic growth, economists said. “The risk of an all-out U.S.-China trade war has increased significantly,” Tao Wang and Ning Zhang of UBS said in a report.

China accuses US of ‘bullying’ as tariffs escalate

BEIJING (AP) — China and the United States imposed new tariff hikes on each other’s goods Sept. 24 and Beijing accused Washington of bullying, giving no sign of compromise in an intensifying battle over technology that is weighing on global economic growth. U.S. regulators went ahead with a planned 10 percent tax on a $200 billion-list of 5,745 Chinese imports including bicycles and furniture. China’s customs agency said it responded at noon by beginning to collect taxes of 5 or 10 percent on a $60 billion-list of 5,207 American goods, from honey to industrial chemicals. The conflict stems from U.S. President Donald Trump’s complaints Beijing steals or pressures foreign companies to hand over technology. American officials say Chinese plans for state-led development of global competitors in robotics and other technologies violate its market-opening obligations and might erode U.S. industrial leadership. China’s leaders offered to narrow their politically sensitive, multibillion-dollar trade surplus with the United States by purchasing more natural gas and other American exports. But they have rejected pressure to change industry plans the communist leadership sees as a path to prosperity and global influence. The Sept. 24 tariff hike follows a report by The Wall Street Journal that Chinese officials pulled out of a meeting to discuss possible talks proposed by Washington. The Chinese government had given no public indication whether it would accept the invitation. Envoys last met Aug. 22 in Washington but reported no progress. With no settlement in sight, forecasters say the conflict between the two biggest economies could trim global growth through 2020. On Sept. 24, the ratings agency Fitch cut its forecasts for next year’s Chinese and global economic growth by 0.1 percentage points to 6.1 percent and 3.1 percent, respectively. “The trade war is now a reality,” said Fitch’s chief economist, Brian Coulton, in a report. “The downside risks to our global growth forecasts have also increased.” Earlier, the two sides imposed 25 percent penalties on $34 billion of each other’s goods in July and another $16 billion in August. Business groups say American companies also report Chinese regulators are starting to disrupt their operations through slower customs clearance and more environmental and other inspections. The first American tariffs targeted goods Washington said benefit from improper Chinese industrial policies. American regulators tried to limit the public impact by focusing on industrial machinery and components, but the latest $200 billion list includes bicycles, wooden furniture and other consumer goods. Chinese regulators have tried to cushion the blow on their own economy by targeting American goods such as soybeans, natural gas, fruit, whisky and automobiles that are available from Europe, Latin America and other Asian countries. Trump threatened last week to add $267 billion in Chinese imports to the target list if Beijing retaliated for the latest U.S. taxes. That would cover nearly everything China sells to the United States. On Sept. 24, the Chinese government accused the Trump administration in a report of “trade bullyism” and of preaching “economic hegemony.” The toughly worded report said Beijing wants a “reasonable solution” but gave no indication of possible concessions. It affirmed China’s stance that it is a developing country, a claim that rankles Washington, Europe and other trading partners. They point to China’s status as a major manufacturer and a growing competitor in smartphones and other technology. They say Beijing is no longer entitled to concessions it was granted when it joined the World Trade Organization in 2001, such as the right to limit access to its finance, energy and other markets. Chinese leaders have tried without success to recruit as allies German, France, South Korea and other trading partners that echo U.S. complaints about Chinese market barriers and industry plans but criticize Trump’s approach. The Trump administration has “has brazenly preached unilateralism, protectionism and economic hegemony, making false accusations against many countries and regions, particularly China, intimidating other countries through economic measures such as imposing tariffs, and attempting to impose its own interests on China through extreme pressure,” the official Xinhua News Agency said. Chinese leaders have announced changes this year including tariff cuts and plans to end ownership limits in their auto industry. But businesspeople who have met senior planners say they express no willingness even to discuss changes to technology development plans. As the fight intensifies, China is running out of U.S. imports for retaliation. Imports of American goods last year totaled $153.9 billion while the United States bought Chinese goods worth $429.8 billion, according to Chinese customs data. The Sept. 24 increase leaves Beijing with about $40 billion of goods for penalties while the Washington has almost $200 billion.

China struggles to curb its reliance on US buyers, suppliers

BEIJING (AP) — Faced with plunging U.S. orders, surgical glove maker Ren Jiding is hunting for new markets amid Chinese government calls to reduce reliance on the United States. But none can absorb the 60 percent of his sales that went to American customers last year. “Other countries import much less than the United States,” said Ren, a co-owner of Hongyeshangqin Medical Science and Technology Co., Ltd. in the eastern city of Zibo. From medical products to smartphone chips to soybeans, Beijing is responding to President Donald Trump’s tariff hikes by pushing companies to trade more with other countries. But there are few substitutes for the United States as an export market and source of technology for industries including telecom equipment makers Chinese leaders are eager to develop. Beijing has announced tariff cuts and other changes while rejecting U.S. demands to scale back plans such as “Made in China 2025,” which calls for state-led creation of Chinese champions in robotics, biotech and other fields. American leaders say those violate Beijing’s market-opening promises and might erode U.S. industrial leadership. The response highlights the cost the ruling Communist Party is willing to pay in lost sales and jobs to stick to plans that are fueling conflict with Washington, Europe and other trading partners. “China sees its technology and industrial policies as fundamental to its growth,” Tianjie He of Oxford Economics said in an email. “It is thus hard to see China’s leadership committing to significant changes.” Trump has raised duties on a total of $50 billion of Chinese imports including ultrasound scanners and industrial components that Washington says benefit from improper policies. China retaliated with similar penalties. The U.S. is poised to raise duties on $200 billion of imports including the gloves made by Ren’s company. Beijing has issued a list of American goods for retaliation. The impact on China is “small and is containable, at least for the time being,” said Vincent Chan of Credit Suisse. He said the “worst case” outlook if all threatened U.S. tariff hikes go ahead would cut China’s growth by 0.2 percentage points this year and 1.3 percent in 2019. Chinese leaders have tried to cushion the blow to their own economy by targeting American goods its importers can get from other countries — soybeans from Brazil, gas from Russia, cars from Germany and fish from Vietnam. Beijing has promised to use revenue from the higher tariffs to help struggling exporters and has ordered banks to lend more freely to them. The biggest jolt so far came from Beijing’s cancellation of orders for soybeans, the biggest American export to China at $21 billion last year. That hammered farm states that voted for Trump in the 2016 election. It also pushed up prices for Chinese farmers that use soybeans for animal feed and food processors that crush them for cooking oil. That could be a windfall for Brazil. But China already is its top market and consumes two-thirds of the global supply. Chinese total imports last year of 95 million metric tons were 50 percent more than the South American giant’s entire exports. “The Chinese can talk all they want about finding other sources of soybeans,” but 80 percent come from the United States, Brazil and Argentina, said Michael Cordonnier, president of Soybean &Corn Advisor, Inc., a U.S. research firm. “If you want to import soybeans, it generally must be from one of those three countries,” said Cordonnier in an email. Regulators also cut import duties on automobiles on July 1 but raised them on vehicles from the United States. That helps luxury brands that import from Germany and Japan. Replacing markets for Chinese exporters that support tens of millions of jobs will be harder. The United States bought $430 billion of China’s exports last year, or 20 percent of the $2.2 trillion total. The No. 2 market was the 28-nation European Union at $370 billion. “We can’t afford to lose the U.S. market,” said David Hu, general manager of Sinohood Bags Factory Ltd. in the southeastern city of Yiwu. Americans bought 40 percent of his canvas tote bags last year, including the most profitable customized versions with Christmas and other designs. “What we export to Europe is lower-end products with lower prices,” said Hu. “We could explore the Indian, Vietnamese or Philippine markets. But the prices they offer would be too low.” Chinese officials point to potential markets in the “Belt and Road,” a multibillion-dollar initiative led by President Xi Jinping to boost trade by building ports, railways and other infrastructure across Asia to Europe. That has brought a flood of contracts to Chinese state-owned builders but complaints about costs have hurt its appeal. Prime Minister Mahathir Mohamad of Malaysia announced this month the cancellation of plans for Chinese-built projects including a $20 billion rail line. “There is potential for development in areas such as central Asia, Eastern Europe, Africa and South America. But their problems are development imbalance and economic instability,” said Li Yong, a senior fellow at the China Association of International Trade, an industry group. Local officials have met with exporters to exhort them to “diversify markets,” according to the state press. Authorities in the central city of Jingzhou visited exporters to help with customs forms, financing and other details, the website China Industry and Commerce News said. Ren, the surgical glove maker, said his 300-employee company was looking at Europe and developing countries but demand was sluggish. Some companies are confident of keeping their U.S. market share. That reflects the possible success of official efforts to develop higher-tech goods instead of competing on price alone. The general manager of Yihua Electronic Equipment Co. in southern China’s Guangdong said the tariffs should not affect sales of its digital soldering guns, one-fifth of which are sold to the United States. “With the 25 percent tariffs, ours still are cheaper than similar German- or Japanese-made products,” said the manager, who would give only his surname, Gou. “We are not producing something like shoes and clothing that could be easily replaced.” Trump’s pressure is likely to backfire by encouraging Beijing to throw even more resources at nurturing its own technology creators. China’s search for non-U.S. suppliers could help companies such as Taiwanese chipmaker MediaTek Inc. But redesigning a phone or network gear and then gaining regulatory and customer approval can take a minimum of three to five years. “For now,” said He of Oxford Economics, “China remains technologically dependent on the U.S.”

How China could retailiate against US if it runs out of imports to tax

BEIJING (AP) — In his trade war with China, President Donald Trump wields one seeming advantage: The United States could ultimately slap tariffs on more than $500 billion in imported Chinese goods. Beijing has much less to tax: It imported just $130 billion in U.S. goods last year. Yet that hardly means China would be powerless to fight back once it ran out of U.S. goods to penalize. It possesses a range of other weapons with which to inflict pain on the U.S. economy. Indeed, China’s Commerce Ministry has warned of “comprehensive measures” it could take against the United States. It has given no details but possible tactics could include harassing automakers, retailers or other American companies that depend on China to drive revenue to selling U.S. government debt or disrupting diplomatic efforts over North Korea. Some of those steps might harm China’s own interests. But Beijing might still be willing to deploy them, at least temporarily, if its trade war with Washington were to drag on. On Friday, Washington imposed its first tariffs in response to complaints Beijing steals or pressuring companies to hand over technology. China swiftly announced retaliatory tariffs on a similar amount of U.S. goods. A look at some of China’s options: Target American companies China’s state-dominated and heavily regulated economy gives authorities an arsenal of tools to disrupt U.S. companies by withholding licenses or launching tax, anti-monopoly or other investigations. Also open to retaliation are services such as engineering and logistics in which the United States runs a trade surplus. “The U.S. focus is on goods, while China could very well look at services, as well as the operation of U.S. companies in China,” said Taimur Baig, chief economist for DBS Group. In one prominent case, U.S. chipmaker Qualcomm Inc. has waited for months for word on whether Chinese regulators will accept its proposed $44 billion acquisition of NXP Semiconductors. All other major governments have approved the deal. China’s entirely state-controlled media have encouraged consumer boycotts against Japanese, South Korean and other products during previous disputes with those governments. Last year, Beijing destroyed Korean retailer Lotte’s business in China after the company sold land in South Korea to the Seoul government for an anti-missile system opposed by Chinese leaders. Beijing closed most of Lotte’s 99 supermarkets and other outlets in China. Seoul and Beijing later mended relations, but Lotte gave up and sold its China operations. Financial leverage Nationalists point to China’s $1.2 trillion holdings of U.S. government debt as leverage. Beijing might suffer losses if it sold enough to influence U.S. debt financing costs — but such sales might become necessary. China’s yuan has sagged against the dollar this year, which might require the central bank to intervene in currency markets. To get the dollars it needs, the People’s Bank of China might “become a net seller of U.S. Treasurys,” said Carl B. Weinberg of High-Frequency Economics in a report. “Punishing the U.S. Treasury market is one of the tactics China has available to retaliate against unilateral U.S. tariffs,” said Weinberg. Diplomatic pressure Beijing can appeal for support to U.S. allies that are miffed by Trump’s “America first” approach and the U.S. withdrawal from the Paris climate pact. Trump’s unilateral actions have allowed China to position itself as a defender of free trade despite its status as the most-closed major economy. That could help Beijing win over governments that have criticized Trump for acting outside the World Trade Organization. “China could strike a common ground with the EU, Canada, Japan and other economies impacted by the U.S. tariffs,” said Citigroup economists Li-Gang Liu, Xiaowen Jin and Xiangrong Yu in a report. Chinese leaders have tried, so far without success, to recruit European and other governments as allies. More broadly, Chinese commentators have suggested Beijing also could disrupt diplomatic work over North Korea’s nuclear and missile programs or other initiatives. But political analysts say that would risk setting back work Chinese leaders see as a priority.
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