Trade fight deepens as China ups tariffs on $60B in US goods

The Finance Ministry said Monday the new penalty duties of 5% to 25% on hundreds of U.S. products including batteries, spinach and coffee will take effect June 1.

That followed Trump’s increase on Friday of duties on $200 billion of Chinese imports from 10% to 25% after charging that China had backtracked on commitments it made in earlier negotiations in a dispute over Beijing’s technology ambitions and perennial trade surplus.

Resuming his messages over Twitter early Monday, President Donald Trump warned Chinese President Xi Jinping that China “will be hurt very badly” if it doesn’t agree to a trade deal.

Trump tweeted China “had a great deal, almost completed, & you backed out!”

Trump insisted the tariffs the U.S. has placed on Chinese goods don’t hurt American consumers, saying there is “no reason for the U.S. Consumer to pay the Tariffs.”

‘Both sides will pay’

White House economic adviser Larry Kudlow acknowledged Sunday that U.S. consumers and businesses pay the tariffs. “Both sides will pay,” he told Fox News.

China had vowed “necessary countermeasures” on Friday against Trump’s escalation of the tariff conflict.

Markets fall hard

U.S. companies that would stand to lose the most in a prolonged trade war with China led the way lower as of 8:45 a.m. PDT. Apple fell 5.4% and Caterpillar dropped 5.1%.

Utilities, which investors tend to buy when they are fearful of market turbulence, were the only sector to rise.

The Dow Jones Industrial Average sank 623 points, or 2.4%. The S&P 500 fell 71 points, or 2.5% and the Nasdaq sank 3.3%.

Overseas markets also fell. European indexes were down a bit more than 1%. In Asia, the Shanghai Composite index fell 1.2%. Japan’s Nikkei 225 index gave up 0.7% and South Korea’s Kospi fell 1.4%.

Lack of tariff targets

Beijing is running out of U.S. imports for penalties due to the lopsided trade balance between the world’s two largest economies. Regulators have targeted American companies in China by slowing down customs clearance for shipments and processing of business licenses.

The new tariffs are likely to hurt exporters on both sides, as well as European and Asian companies that trade between the United States and China or supply components and raw materials to their manufacturers.

The increases already in place have disrupted trade in goods from soybeans to medical equipment and sent shockwaves through other Asian economies that supply Chinese factories.

China recovery

Forecasters have warned that the U.S. tariff hikes could disrupt a Chinese recovery that had appeared to be gaining traction. Growth in the world’s second-largest economy held steady at 6.4% over a year earlier in January-March, supported by higher government spending and bank lending.

The tensions “raise fresh doubts about this recovery path,” Morgan Stanley economists Robin Xing, Jenny Zheng and Zhipeng Cai said in a report.

The latest U.S. charges could knock 0.5 percentage points off annual Chinese economic growth and that loss could widen to 1 percentage point if both sides extend penalties to all of each other’s exports, economists say. That would pull annual growth below 6%, raising the risk of politically dangerous job losses.

The latest talks ended with no word of progress on Friday. Chinese officials said they hoped that the U.S. side would meet them halfway, describing the standoff as just a “setback.”

Trump might meet his Chinese counterpart, Xi Jinping, during next month’s meeting of the Group of 20 major economies in Osaka, said Kudlow, his economic adviser.

Chinese officials have invited the top U.S. envoys — Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin — to Beijing, Kudlow said on Fox News. But he said there were no “definite plans.”

China’s state media has sought to reassure businesses and consumers that the ruling Communist Party has the resources and policy tools to respond to the dispute with Washington.

“There is nothing to be afraid of,” said the party newspaper People’s Daily. “The U.S.-instigated trade war against China is just a hurdle in China’s development process. It is no big deal.”

Trump started raising tariffs last July over complaints China steals or pressures companies to hand over technology.

Washington wants Beijing to roll back government support for Chinese companies striving to become global leaders in robotics and other technology. The U.S. and other trading partners say such efforts violate Beijing’s free-trade commitments.

A stumbling block has been U.S. insistence on an enforcement mechanism with penalties to ensure Beijing carries out its commitments. Economists say Chinese leaders probably reject that as a violation of Chinese sovereignty.

The abruptness of Trump’s announcement on May 5, just days before the last round of talks, about raising tariffs to 25% made companies see doing business in China as more uncertain, said Jake Parker, vice president of the U.S.-China Business Council, an industry group.

No matter what Washington and Beijing decide, “there is an enormous risk in the background that tariffs could come back into play at any moment,” he said.