U.S. Slaps Higher Tariffs on Chinese Imports as Trade Talks Resume
Date: Friday, May 10, 2019
Source: The Wall Street Journal
President says U.S. would impose fresh levies on $325 billion in Chinese goods as negotiators move to salvage potential deal
WASHINGTON—The U.S. increased tariffs on $200 billion of Chinese goods to 25% Friday as President Trump ratcheted up pressure on Beijing and threatened to impose additional levies on virtually everything China exports to the U.S.
The tariff hike went into force hours after U.S. and Chinese negotiators met Thursday in hopes of getting the troubled trade talks back on track. Discussions are set to resume Friday, but the White House said it had no plans to suspend the scheduled tariff increase, which will raise levies from the current 10%.
China said Friday it regretted the U.S. tariff increase and would take countermeasures, although it didn’t say what action it would take or when.
U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin met with Chinese Vice Premier Liu He for a working dinner Thursday night. Afterward, Messrs. Lighthizer and Mnuchin briefed Mr. Trump on the talks, the White House said.
Earlier Thursday, Mr. Trump told reporters the U.S. was also taking steps to impose fresh 25% tariffs on $325 billion in Chinese goods that aren’t currently taxed. If that happens, virtually all Chinese exports to the U.S. would face 25% tariffs.
“I’m different than a lot of people,” Mr. Trump said at the White House. “I happen to think the tariffs for our country are very powerful.”
In a series of tweets Friday morning, he continued to back tariffs as good for the U.S. economy, while saying the U.S. will continue to negotiate. “Tariffs will make our Country MUCH STRONGER, not weaker. Just sit back and watch!” He added: “Build your products in the United States and there are NO TARIFFS!”
China has rejected U.S. claims that it has backtracked in negotiations—the source of a setback this week that threatened to scuttle a potential trade agreement between the two countries—and has threatened unspecified countermeasures to the new U.S. tariffs.
“I came here this time, under pressure, to show China’s great sincerity,” Mr. Liu said in an interview with state broadcaster CCTV after arriving in the U.S.
Mr. Trump’s tactics reflected U.S. negotiators’ frustration that Beijing had reneged on earlier commitments that had been expected to produce a preliminary agreement during talks this week in Washington.
But the move also made clear that Mr. Trump sees tariffs as a winning tactic, both internationally with trade partners and at home with Congress.
Sen. Chuck Schumer of New York, the Senate’s Democratic leader, has backed a tougher stance toward China—although he could quickly withdraw his support if Mr. Trump, a Republican, fails to reach a deal that fundamentally changes Chinese economic policy.
The U.S. threats acted as a backdrop to resumed negotiations between Washington and Beijing, which began with meetings between midlevel negotiators on Wednesday and continued with Mr. Liu on Thursday. Talks had progressed smoothly over recent months but nearly derailed last week.
The U.S. thought China had agreed to detail the laws it would change to implement the trade deal under negotiation, according to administration officials. But late last week, Beijing said it had no intention of doing so, triggering Mr. Trump’s threat Sunday to escalate tariffs and bringing the dispute into the open. U.S. negotiators viewed China as reneging on earlier commitments. From Beijing’s vantage point, the move was an effort to renegotiate U.S. demands that it believed impinged on Chinese sovereignty.
The negotiating setback reinforced concerns in Washington that Mr. Liu didn’t have the political strength to push commitments through the labyrinthine Chinese bureaucracy and Communist Party structure.
Mr. Liu is a longtime colleague and trusted adviser of President Xi Jinping, but he was known mainly as an academic, not a party leader. U.S. officials were quick to say Thursday that Mr. Trump’s threat to escalate tariffs wasn’t aimed at Mr. Liu, who is considered an economic reformer, but at conservative policy makers in China who prefer a tougher stance toward the U.S.
Mr. Trump also tempered his threats by saying that Mr. Xi had written him “a very beautiful letter” Wednesday and that he would probably speak with Mr. Xi to see whether personal diplomacy might help.
“Let’s work together,” Mr. Trump said. “Let’s see if we can get something done.”
Mr. Liu was scheduled to have dinner with Mr. Lighthizer Thursday evening.
It wasn’t known whether Mr. Liu would be carrying instructions from Mr. Xi to offer the concessions the U.S. thinks are necessary for a deal, or would just sound out U.S. officials to better understand their intentions. Unlike in prior visits, Mr. Liu wasn’t given the title of Mr. Xi’s “special envoy,” suggesting he may not have the power to make significant compromises.
China’s Commerce Ministry has threatened to take unspecified countermeasures should the U.S. move ahead with its planned tariff increase on the $200 billion of goods.
While Beijing has yet to spell out how it will retaliate, its options range from a reciprocal hiking of tariffs to punishing American companies. Beijing could sit on business-license requests by U.S. companies or withhold permission from American banks, brokerages and car makers to increase stakes in their Chinese ventures.
In previous rounds of retaliation, Beijing has imposed punitive duties on U.S. farm products, causing exports of U.S. soybeans, sorghum and pork to fall. A likely move now would be to raise tariffs on $60 billion in American goods—from semiconductors to chemicals—to 25%, from the current 5% to 10%. That was China’s initial plan last fall to counter the U.S. duties on $200 billion in Chinese goods. When the U.S. set its tariff rate at 10%, China kept to the lower threshold, and now that the U.S. has moved higher, Beijing could follow.
Financial markets were volatile Thursday as investors struggled to make sense of the continuing trade negotiations. The Dow Jones Industrial Average tumbled more than 400 points early, dragged lower by shares of manufacturers and technology firms whose businesses rely heavily on Chinese growth. As investors sought relatively safe assets, Treasury yields slipped, sending bond prices higher.
But after Mr. Trump suggested the White House could still reach a deal with Beijing, stocks and bond yields bounced off their lows for the day. To traders, the back-and-forth pointed to the continuing uncertainty over the fate of the two countries’ trade talks.
The impact of the U.S. tariff increase to 25% is unlikely to be felt right away. The goods facing that increase had already been subject to a 10% tariff since September. Companies that have discussed the levies in earnings calls this year have said they planned for the tariff increase in their financial forecasts.
The bulk of the goods facing increased levies are capital and intermediate goods such as circuit boards, microprocessors, vehicle parts, and machinery. About $40 billion of consumer goods will also be hit. All told, over 5,000 different items are subject to the tariffs.
The tariffs apply to goods leaving China and entering the U.S. after midnight on Friday. Airfreight shipments will be hit right away, but cargo that was loaded onto ships in China before Friday and is already bound for U.S. ports won’t be subject to the levies.
But should the U.S. press ahead to levy tariffs on the remainder of Chinese imports—$325 billion of goods, according to Mr. Trump—that would fall very heavily on consumers. Those goods include iPhones and other mobile phones, clothing, laptops and many other everyday products that consumers rely upon. The U.S. has tried to keep those items free from fresh tariffs to avoid a consumer backlash that could undermine the U.S. trade effort.
Any new tariffs would be weeks if not months away. The U.S. trade representative’s office would need to identify the goods, seek comments on its choices and hold hearings. The administration has moved carefully on tariffs to try to avoid being sued for failing to follow administrative procedures.
The trade conflict started more than a year ago when the trade representative’s office published a lengthy study saying that China systematically pressed U.S. companies to hand over technology to their competitors, and favored its domestic firms with improper subsidies and other aid. The study also said U.S. companies were unfairly blocked from participating in Chinese financial and digital markets.
Those issues have now taken a back seat to the dispute over whether China would commit in a trade pact to change its laws, and whether the U.S. could be persuaded not to raise tariffs.
China “started to renegotiate the deal. We can’t have that,” Mr. Trump said Thursday.