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U.S. expects trade talks after China fires back with more tariffs

The United States voiced willingness on Wednesday to negotiate a resolution to an escalating trade fight with China after Beijing retaliated against proposed U.S. tariffs on US$50-billion in Chinese goods by targeting key American imports, but the Chinese ambassador to Washington said it “takes two to tango.”

Just 11 hours after U.S. President Donald Trump’s administration proposed 25-per-cent tariffs on some 1,300 Chinese industrial, technology, transport and medical products, China shot back with a list of similar duties on major U.S. imports including soybeans, planes, cars, beef and chemicals.

Beijing’s swift and forceful response raised the prospect of a quickly spiralling dispute between the world’s two economic superpowers that could harm the global economy.

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While Mr. Trump posted defiant messages on Twitter, his administration signalled possible wiggle room.

Asked whether the U.S. tariffs announced on Tuesday may never go into effect and may be a negotiating tactic, the President’s top economic adviser, Larry Kudlow, told reporters: “Yes, it’s possible. It’s part of the process.” He called the announcements by the two countries mere opening proposals.

Mr. Kudlow later told Fox News Channel: “I don’t think it’s a trade war. I think there is going to be intense negotiations on both sides.”

“I think we’re going to come to agreements,” he said, adding, “I believe that the Chinese will back down and will play ball.”

Cui Tiankai, China’s Ambassador to the United States, held an hour-long meeting at the U.S. State Department in Washington with acting Secretary of State John Sullivan.

“Negotiation would still be our preference, but it takes two to tango. We will see what the U.S. will do,” the ambassador said afterward.

The trade actions will not be carried out immediately, so there may be room to manoeuvre. Publication of Washington’s list on Tuesday started a period of public comment and consultation expected to last around two months. The effective date of China’s moves depends on when the U.S. action takes effect.

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If the two countries are unable to settle the dispute, a full-scale trade war could destabilize U.S.-Chinese commercial ties, an important component of the global economy.

China’s action rattled U.S. farmers, while shares in U.S. exporters of everything from planes to tractors were volatile.

After dropping at the outset of trading, Wall Street’s three major indexes staged a comeback to close about 1-per-cent higher as investors turned their focus to earnings and away from the trade fight.

White House press secretary Sarah Sanders said U.S. implementation of the tariffs would depend on China’s behaviour.

“It’s going to be a couple months before tariffs on either side would go into effect and be implemented and we’re hopeful that China will do the right thing,” she told reporters.

“I would anticipate that if there are no changes to the behaviour of China and they don’t stop the unfair trade practices, then we would move forward,” Ms. Sanders said.

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Mr. Trump, who contends his predecessors served the United States badly in trade matters, wrote on Twitter: “We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S.”

Political damage

While Washington targeted products that benefit from Chinese industrial policy –including its “Made in China 2025” initiative to replace advanced technology imports with domestic products in strategic industries such as advanced IT and robotics – Beijing appeared to offer a response intended to inflict political damage.

Washington’s list was filled with many obscure industrial items, but China’s struck at signature U.S. exports, including soybeans, frozen beef, cotton and other agricultural commodities produced in states from Iowa to Texas that voted for Mr. Trump in the 2016 presidential election.

The list extends to tobacco and whisky, both produced in states including Kentucky, home of U.S. Senate Majority Leader Republican Mitch McConnell.

Mr. Trump said last month that “trade wars are good, and easy to win,” but key fellow Republicans expressed unease over the latest developments.

Mr. McConnell said he was nervous about the “growing trend in the administration to levy tariffs” that could become a “slippery slope,” while Senator Chuck Grassley, whose home state of Iowa is a major agricultural producer, said: “Farmers and ranchers shouldn’t be expected to bear the brunt of retaliation for the entire country.”

The possibility of an escalating U.S.-China trade war will result in “a bumpy ride” for the U.S. economy, said James Bullard, president of the Federal Reserve Bank of St. Louis.

China said its list of 25-per-cent additional tariffs on U.S. goods covered 106 items with a trade value matching the US$50-billion targeted on Washington’s list.

U.S.-made goods that appear to face added tariffs in China include Tesla Inc. electric cars, Ford Motor Co.’s Lincoln auto models, Gulfstream jets made by General Dynamics Corp. and Brown-Forman Corp.’s Jack Daniel’s whisky.

Information technology products, from cellphones to personal computers, largely escaped the latest salvo of U.S.-China trade measures, despite accounting for a significant portion of bilateral trade.

China ran a US$375-billion goods-trade surplus with the United States in 2017. Mr. Trump has demanded that the China cut the trade gap by US$100-billion.

The U.S. move was aimed at forcing Beijing to address what Washington says is deeply entrenched theft of U.S. intellectual property and forced technology transfer from U.S. companies to Chinese competitors, charges Chinese officials deny.

The U.S. tariff list followed China’s imposition of tariffs on US$3-billion worth of U.S. fruits, nuts, pork and wine to protest U.S. steel and aluminum tariffs imposed last month by Mr. Trump.

What’s on the block

Chinese tariffs

Soybeans: Crushed into animal feed and vegetable oil, this crop is an obvious target. Soybeans are among the most lucrative U.S. exports to China and they are produced in vast swaths of the rural United States that voted heavily for President Donald Trump. Nearly 60 per cent of U.S. soybean exports, worth billions of dollars, went to China.

Aircraft: The United States sold US$15-billion worth of aircraft to China in 2016, making it the largest export to that country. Most are commercial jets from Boeing, whose vast supply chain stretches across the country.

Vehicles: China bought US$11-billion worth of vehicles from the United States in 2016. However, two German companies, BMW and Daimler AG, could be hardest hit by Chinese tariffs. BMW, for example, ships SUVs from its plant in Spartanburg, Ala. Tesla Inc., which makes its electric cars in California, would also be affected.

U.S. tariffs

Electrical machinery: The No. 1 Chinese export to the United States (worth US$129-billion in 2016). But China also has aspirations to move up the technology ladder. So the U.S. tariff list also included sophisticated items such as industrial robots among more than 200 machines targeted.

Pharmaceutical ingredients: China is now a global leader in pharmaceuticals, and the U.S. tariff would hit key exports, including antibiotics and contraceptives.

Flat screen TVs: The Trump administration spared many items Americans get from China, including toys, sports equipment and furniture. But not its flat-screen TVs, which are fixtures at Best Buy, Walmart and other stores.

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