Trump Ratchets Up China Trade Conflict With Fresh Tariff Threat

U.S. President Donald Trump threatened to impose a 10 percent tariff on $200 billion of Chinese goods, prompting a swift warning from Beijing of retaliation, as the trade conflict between the world's two biggest economies quickly escalated.

Trump's latest move, as Washington fights trade battles on several fronts, was unexpectedly swift and sharp.

It was retaliation, he said, for China's decision to raise tariffs on $50 billion in U.S. goods, which came after Trump announced similar tariffs on Chinese goods on Friday.

"After the legal process is complete, these tariffs will go into effect if China refuses to change its practices, and also if it insists on going forward with the new tariffs that it has recently announced," Trump said in a statement on Monday.

The news sent global stock markets skidding and weakened both the dollar and the Chinese yuan in Asian trade on Tuesday.

China's commerce ministry said Beijing will fight back firmly with "qualitative" and "quantitative" measures if the United States publishes an additional list of tariffs on Chinese goods, accusing Washington of launching a trade war.

"Such a practice of extreme pressure and blackmailing deviates from the consensus reached by both sides on multiple occasions," the ministry said in a statement.

"The United States has initiated a trade war and violated market regulations, and is harming the interests of not just the people of China and the U.S., but of the world," it said.

Washington and Beijing appeared increasingly headed toward open trade conflict after several rounds of talks failed to resolve U.S. complaints over Chinese industrial policies, lack of market access in China and a $375 billion U.S. trade deficit.

U.S. Trade Representative Robert Lighthizer said his office was preparing the proposed tariffs and they would undergo a similar legal process as previous ones, which were subject to a public comment period, a public hearing and some revisions. He did not say when the new target list would be unveiled.

"As China hawks, like Lighthizer and (Peter) Navarro, appear to have gained power within the Trump administration lately, an all-out trade war now seems more inevitable," said Yasunari Ueno, chief market analyst at Mizuho Securities in Japan.

TIT-FOR-TAT

On Friday, Trump said he was pushing ahead with a 25 percent tariff on $50 billion worth of Chinese products, prompting Beijing to respond in kind.

Some of those tariffs will be applied from July 6, while the White House is expected to announce restrictions on investments by Chinese companies in the United States by June 30.

"China apparently has no intention of changing its unfair practices related to the acquisition of American intellectual property and technology. Rather than altering those practices, it is now threatening United States companies, workers, and farmers who have done nothing wrong," Trump said.

Trump said if China increases its tariffs again in response to the latest U.S. move, "we will meet that action by pursuing additional tariffs on another $200 billion of goods."

Trump said he has "an excellent relationship" with Chinese President Xi Jinping and they "will continue working together on many issues."

But, he said, "the United States will no longer be taken advantage of on trade by China and other countries in the world."

ZTE TUMBLES

Shares in Chinese telecommunication equipment maker ZTE Corp, another casualty of U.S.-China tensions, plunged more than 20 percent in Hong Kong after the U.S. Senate's passage of a defense bill set up a potential battle with Trump over whether ZTE can resume business with its U.S. suppliers.

ZTE was hit in April with a seven-year ban barring U.S. suppliers selling to it after it broke an agreement to discipline executives who conspired to evade U.S. sanctions on Iran and North Korea. At Trump's urging, ZTE and the U.S. Commerce Department reached agreement on June 7 to lift the ban.

The intensifying trade row is threatening to put more pressure on the already cooling Chinese economy, risking an end to a rare spell of synchronized global expansion.

China's central bank unexpectedly injected 200 billion yuan ($31 billion) in medium-term funds into the banking system on Tuesday in a move that analysts said reflected concerns about liquidity but also the potential economic drag from a full-blown trade war.

OTHER OPTIONS FOR CHINA

China imported $129.89 billion of U.S. goods last year, while the U.S. purchased $505.47 billion of Chinese products, according to U.S. data.

Derek Scissors, a China scholar at the American Enterprise Institute, a Washington think tank, said that means China will soon run out of imports of U.S. goods on which to impose retaliatory tariffs.

He added that China was unlikely to respond to an announcement of tariffs with changes in industrial policies. Those could take a long and painful trade fight.

"As I've said from the beginning, China will back off its industrial plans only when U.S. trade measures are large and lasting enough to threaten the influx of foreign exchange. Not due to announcements," he said.