The United States and China slapped tit-for-tat duties on $34 billion worth of each other’s imports on Friday, with Beijing accusing Washington of triggering the “largest-scale trade war” as the world’s two biggest economies sharply escalated their conflict.
Hours before Washington’s deadline for the tariffs to take effect, U.S. President Donald Trump upped the ante on its largest trading partner, warning that the United States may ultimately target over $500 billion worth of Chinese goods, or roughly the total amount of U.S. imports from China last year.
China’s commerce ministry, in a statement shortly after the U.S. deadline passed at 0401 GMT on Friday, said it was forced to retaliate, meaning imported U.S. goods including cars, soybeans, and lobsters also faced 25 per cent tariffs.
Some of Trump’s fellow Republicans in the U.S. Congress lashed out at his actions.
“Tariffs not only hurt our farmers, ranchers and airplane manufacturers, but they also harm every American consumer. We should be working with our allies to isolate China rather than escalate a trade war,” said Senator Jerry Moran, who represents the agriculture-heavy state of Kansas.
China’s soymeal futures fell more than 2 per cent on Friday afternoon before recovering most of those losses, amid initial market confusion over whether Beijing had actually implemented the tariffs, which it later confirmed it had.
“We can probably say that the trade war has officially started,” said Chen Feixiang, professor of applied economics at Shanghai Jiaotong University’s Antai College of Economics and Management.
“If this ends at $34 billion, it will have a marginal effect on both economies, but if it escalates to $500 billion like Trump said, then it’s going to have a big impact for both countries.”
U.S. relations with other major trading partners also have been tense following the Trump administration’s decision earlier this year to slap tariffs on imported steel and aluminum, including from the European Union. Meanwhile, Washington is attempting to renegotiate the 24-year-old North American Free Trade Agreement with Canada and Mexico.
Friday’s long-expected China tariff volley fuelled fear that a prolonged and escalating battle would hurt global trade, investment and growth, while also damaging U.S. farmers who stand to lose revenues and potentially driving up food prices in China.
“Trade war is never a solution,” Chinese Premier Li Keqiang said at a news briefing with Bulgarian Prime Minister Boyko Borissov in Sofia before a summit with 16 central and eastern European countries.
“China would never start a trade war but if any party resorts to an increase of tariffs, then China will take measures in response to protect development interests.”
In the run-up to Friday, there was no sign of renewed negotiations between U.S. and Chinese officials, business sources in Washington and Beijing said.
“Our baseline forecast assumes only a modest further escalation in the trade ‘war’ this summer,” Bank of America Merrill Lynch said in a Friday note. “However, we can’t rule out a full-blown, recession-inducing ‘trade war’,” it said.
The dispute has roiled financial markets including stocks, currencies and the global trade of commodities from soybeans to coal in recent weeks.
Chinese shares, battered in the run-up to the tariff deadline, reversed earlier losses to close higher, but the yuan remained weaker against the dollar. Asian equities wobbled but also managed to end up.
China lodged a case with the World Trade Organisation (WTO) against the United States, its commerce ministry said in a one-line statement late on Friday.
White House Council of Economic Advisers Chairman Kevin Hassett, in an interview on Fox Business Network on Friday, said Trump is “going to deliver better (trade) deals.” He added that for now, “He’s called the bluff of other countries that have basically been abusing … our workers for a long time.”
Importers of American retail goods hit by higher Chinese duties were reluctant to pass the costs on to consumers for now.
An analysis of over four dozen targeted U.S products showed that prices were little changed on Friday afternoon from earlier in the week. The products, all sold on Chinese e-commerce platforms, ranged from pet food to mixed nuts and whisky.
Ford Motor Co said on Thursday that for now, it will not hike prices of imported Ford and higher-margin luxury Lincoln models in China.
Some Chinese ports had delayed clearing goods from the United States, four sources said on Friday. There did not appear to be any direct instructions to hold up cargoes, but some customs departments were waiting for official guidance on imposing added tariffs, the sources said.
’GANG OF HOODLUMS’
While Chinese state media have slammed Trump’s trade policies and on Friday likened his administration to a “gang of hoodlums,” the simmering conflict has gained little traction on China’s tightly controlled social media, not cracking the 50 top-searched topics on the Twitter-like Weibo platform.
China’s commerce ministry called the U.S. actions “a violation of world trade rules” and said that it had “initiated the largest-scale trade war in economic history.”
Trump has railed against Beijing for intellectual property theft, barriers to entry for U.S. businesses and a $375 billion U.S. trade deficit with China.
Referring to the possibility of more U.S. sanctions on Chinese goods, Trump told reporters aboard Air Force One on Thursday: “You have another 16 (billion dollars) in two weeks, and then, as you know, we have $200 billion in abeyance and then after the $200 billion, we have $300 billion in abeyance. Ok? So we have 50 plus 200 plus almost 300.”
A China central bank adviser said the planned U.S. import tariffs on $50 billion worth of Chinese goods – $34 billion plus a planned follow-on list worth $16 billion – will cut China’s economic growth by 0.2 percentage points, the official Xinhua news agency reported Friday.
China’s tariff list is heavy on agricultural goods such as soybeans, sorghum and cotton, threatening U.S. farmers in states that backed Trump in the 2016 U.S. election, such as Texas and Iowa.