China to hit back against latest US tariffs
BEIJING/WASHINGTON China accused the United States of bullying and warned it would hit back after the Trump administration raised the stakes in their trade dispute, threatening 10 per cent tariffs on US$200 billion of Chinese goods.
Chinas commerce ministry said yesterday it was shocked and would complain to the World Trade Organisation, but did not immediately say how it would retaliate. In a statement, it called the US actions completely unacceptable.
The foreign ministry described Washingtons threats as typical bullying and said China needed to counter-attack to protect its interests.
This is a fight between unilateralism and multilateralism, protectionism and free trade, might and rules, foreign ministry spokeswoman Hua Chunying told a regular briefing yesterday.
Beijing has said it would hit back against Washingtons escalating tariff measures, including through qualitative measures, a threat that US businesses in China fear could mean anything from stepped-up inspections to delays in investment approvals and even consumer boycotts.
China could also limit visits to the US by Chinese tourists, a business state media said is worth $115 billion, or shed some of its US Treasury holdings, Iris Pang, Greater China economist at ING in Hong Kong, wrote in a note.
The $200 billion far exceeds the total value of goods China imports from the US, which means Beijing may need to think of creative ways to respond to such US measures.
On Tuesday, US officials issued a list of thousands of Chinese imports the Trump administration wants to hit with the new tariffs, including hundreds of food products as well as tobacco, chemicals, coal, steel and aluminum, prompting criticism from some US industry groups.
It also includes consumer goods ranging from car tires, furniture, wood products, handbags and suitcases, to dog and cat food, baseball gloves, carpets, doors, bicycles, skis, golf bags, toilet paper and beauty products.
For over a year, the Trump administration has patiently urged China to stop its unfair practices, open its market, and engage in true market competition, US Trade Representative Robert Lighthizer said in announcing the proposed tariffs.
Rather than address our legitimate concerns, China has begun to retaliate against US products ... There is no justification for such action, he said in a statement.
Last week, Washington imposed 25 per cent tariffs on $34 billion of Chinese imports, and Beijing responded immediately with matching tariffs on the same amount of US exports to China. Each side is planning tariffs on a further $16 billion in goods that would bring the totals to $50 billion.
Markets rattled
Investors fear an escalating SinoUS trade war could hit global growth and damage sentiment.
Yesterday, the MSCIs broadest index of Asia-Pacific shares outside Japan was down about 1 per cent, while the main indexes in Hong Kong and Shanghai recovered somewhat after falling more than 2 per cent.
S&P 500 and Dow futures dropped around 1 per cent, pointing to a weak opening on Wall Street later yesterday.
The onshore yuan tracked its offshore counterpart lower with traders closely watching the key 6.7 per dollar level as pressure mounted on the currency.
US President Donald Trump has said he may ultimately impose tariffs on more than $500 billion worth of Chinese goods roughly the total amount of US imports from China last year.
The new list published on Tuesday targets many more consumer goods than those covered under the tariffs imposed last week, raising the direct threat to consumers and retail firms and increasing the stakes for lawmakers in Trumps Republican party facing elections in November.
The list is subject to a twomonth public comment period before taking effect.
Tariffs are taxes
Some US business groups and lawmakers from Trumps own Republican Party were critical of the escalating tariffs.
Senate Finance Committee Chairman Orrin Hatch said the announcement appears reckless and is not a targeted approach.
The US Chamber of Commerce has supported Trumps domestic tax cuts and efforts to reduce regulation of businesses, but does not back Trumps aggressive tariff policies.
Tariffs are taxes, plain and simple. Imposing taxes on another $200 billion worth of products will raise the costs of every day goods for American families, farmers, ranchers, workers, and job creators. It will also result in retaliatory tariffs, further hurting American workers, a Chamber spokeswoman said.
Louis Kuijs, Hong Kong-based Head of Asia Economics at Oxford Economics, said while he expects China to strongly condemn the US moves, its policy response is likely to be limited for now.
In part because they have only limited ammunition and in part because its still early in the process on the US side, Kuijs said.
Trump has been following through on pledges he made during his presidential campaign to get tough on China, which he accuses of unfair trade practices including theft of intellectual property and forced technology transfer that have led to a $375 billion US trade deficit with China.
Chinas exports have mushroomed since it joined the World Trade Organisation in 2001, making it the worlds second-largest economy and prompting widening criticism in recent years from trading partners that it has unfairly used global trade rules to its advantage.
As its dispute with Washington deepened, Beijing has been calling on other countries to support global free trade and has talked up efforts to ease investment rules. During a visit to Germany this week by Chinese Premier Li Keqiang, the countries signed business deals worth more than $23 billion.
China stands in line with the international community on the correct side of history to together protect the rules of the multilateral trade order, foreign ministry spokeswoman Hua said yesterday.
Yuan, Aussie hit
The Chinese yuan skidded towards an 11-month low and the Australian dollar fell yesterday after the Trump administration threatened 10 per cent tariffs on $200 billion worth of Chinese imports.
The most traded currencies, the US dollar and euro, were largely unmoved though the single currency was the weaker while the safe-haven Japanese yen remained flat, reflecting limited reaction in broader currency markets.
Traders instead focused their attention on where a ratcheting of Sino-US trade tensions will likely hit fastest - in China and in Asia where countries like Australia depend on Chinese demand for their exports.
Asian equities also sold off, bringing a recent rally in markets as investors focused on the relative strength of the global economy to a halt.
The news of more possible tariffs comes days after Washington imposed 25 per cent tariffs on $34 billion of Chinese imports, and Beijing responded immediately with matching tariffs on the same amount of US exports to China.
The recent recovery on the markets came to an abrupt end this morning. Investors are going to be waiting for a reaction from Beijing once again, said Commerzbank analysts.
They said it remained a matter of debate whether the biggest impact of more tariffs would be felt in China or the United States, describing the implications for the dollar difficult to gauge as weaker growth may coincide with higher inflation.
The offshore Chinese yuan fell as low as 6.6918 per dollar, down more than half a per cent from late US levels and edging near its 11month low of 6.7344 touched on July 3.
The Australian dollar slipped 0.7 per cent to $0.7404 from this weeks high of $0.7484, which was its highest levels in more than three weeks.
The euro fell 0.1 per cent to $1.1731 against the US dollar while the dollar index rose marginally to 94.201.
The yen had strengthened in earlier Asian trading but fell back and was flat versus the dollar at 111.03 yen. The dollar had hit a seven-week high of 111.355 yen on Tuesday.
The Canadian dollar weakened 0.2 per cent to C$1.3137 ahead of an expected interest rate hike by the Bank of Canada. Traders will be scanning the central banks comments for the outlook on inflation and monetary policy. REUTERS