China has underestimated President Donald Trump’s resolve to move forward with tariffs unless Beijing changes its “predatory” trade practices, a top U.S. trade adviser said on Tuesday, in comments that diminished the chances of a negotiated settlement to a looming trade war between the world’s economic superpowers.
The growing U.S. trade conflict with China hit financial markets hard, and Beijing vowed a firm response. It accused the United States of “extreme pressure and blackmailing” and vowed to retaliate after Trump on Monday threatened to slap a 10 per cent tariff on $200 billion of Chinese goods in addition to the import duties previously announced on $50 billion in goods.
White House trade adviser Peter Navarro, who views China as a rival economic and military power, said Beijing had more to lose from a trade war. With Trump’s latest salvo, he has now threatened tariffs on up to $450 billion in China’s exports, out of a total of just over $500 billion in goods sold to the United States.
“The fundamental reality is that talk is cheap,” Navarro told reporters on a conference call, saying China “may have underestimated the strong resolve of President Donald J. Trump.”
“If they thought that they could buy us off cheap with a few extra products sold and allow them to continue to steal our intellectual property and crown jewels, that was a miscalculation.”
The threat of new tariffs against China pits the world’s two largest economies against each other and looks set to disrupt global supply chains for the tech and auto industries, two sectors heavily reliant on outsourced components.
In addition to the $200 billion of imports Trump threatened with tariffs if China hits back over duties already announced on $50 billion of exports to the United States, he said another $200 billion would be imposed if Beijing retaliates further, a high-risk strategy that drove shares and commodities lower.
Mounting concerns over the U.S.-China dispute sent global stock markets skidding and weakened both the dollar and the Chinese yuan on Tuesday. Shanghai stocks plunged to two-year lows. The Dow Jones Industrial Average gave up all of its gains from 2018 and the S&P 500 also fell along with commodities. U.S. bond yields fell in a flight to safety.
China’s commerce ministry said Beijing will fight back with “qualitative” and “quantitative” measures if the United States publishes an additional list of tariffs on Chinese goods.
“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,” the ministry said in a statement.
Trump has raised trade tensions on other fronts as well. He slapped tariffs on steel and aluminum from Canada, Mexico and the European Union, threatened to kill the North American Free Trade Agreement and is studying new tariffs on car imports.
Economists complain that Trump’s efforts to reduce America’s deficit are misguided, saying the gap in trade with China reflects the underlying economy. Some believe Trump is bluffing, contrary to Navarro’s comments.
Goldman Sachs Chief Executive Lloyd Blankfein said Trump’s approach to China on trade may be “bluster.”
“I don’t know that we’re in a suicide pact on this. I suspect that we are not going to cause the economies to collapse,” Blankfein added.
Clayton Allen of Height Capital Markets said in a report Trump’s “provocative” moves were aimed at winning quick Chinese concessions.
Also caught in the crossfire was Chinese telecoms company ZTE Corp, whose rescue by Trump in a deal with Chinese President Xi Jinping appeared in doubt after a U.S. Senate vote on Monday.
U.S. business groups said members were bracing for a backlash that would affect all American firms in China, not just in sectors facing tariffs. Jacob Parker, vice president of China operations at the U.S.-China Business Council in Beijing, said China would “begin looking at other ways to enforce action against U.S companies that are operating in the market.”
Some companies have reported Beijing is meeting with Chinese businesses to discuss shifting contracts for U.S. goods and services to suppliers from Europe or Japan, or to local Chinese firms, Parker said.
Beijing has mounted campaigns against Japanese and South Korean companies in the past after diplomatic disputes.
The intensifying trade dispute threatens to put more pressure on the already cooling Chinese economy.
China imported $129.89 billion of U.S. goods last year, while the United States purchased $505.47 billion of Chinese products, according to U.S. data.
Even with tariffs on an additional $200 billion in Chinese goods, the impact on both China’s and the U.S. economy is set to be small, most economists say. The risk of contagion comes from financial markets, they believe, as sharp sell-offs could hit consumer and business confidence.