Asian shares rise as traders shrug off new China-US tariffs

Asian shares rise as traders shrug off new China-US tariffs
China Once Looked Tough on Trade. Now Its Options Are Dwindling.
Hong Kong (CNN)The trade war between the United States and China just got a lot bigger after both sides announced their broadest waves of tariffs yet.

CNNs Serenitie Wang, Yong Xiong, Matt Rivers, Donna Borak, Katie Lobosco and Kevin Liptak contributed to this report.

阅读简体中文版閱讀繁體中文版BEIJING — President Trump imposed tariffs in July on $34 billion in Chinese goods. China matched them dollar for dollar with its own.

A similar dynamic appears to have played out ahead of Mondays tariff announcement. West Coast ports reported a big increase in incoming cargo in June as companies filled their warehouses before the expected tariff increases. That led to a slowdown in subsequent months. Imports of Chinese furniture, which are included in the tariffs, rose 10.5% in June and July compared with a year earlier, according to the Commerce Department.

Now, Mr. Trump has made his biggest move yet, announcing 10 percent tariffs starting in a week on $200 billion a year of Chinese goods. But this time, China cant match them all — and that crystallizes a growing problem for Beijing.

On Tuesday, Chinese officials responded to the presidents latest move by following through on an earlier threat to impose tariffs on $60 billion in American goods — nearly everything China buys from the United States.

With President Trumps announcement of a 10% tariff on $200 billion in goods on Monday and Chinas announcement on Tuesday of retaliatory tariffs on $60 billion in U.S. goods, trade tensions between the worlds two largest economies grew. Barring a deal, U.S. tariffs will rise to 25% at the end of the year, and tariffs on an additional $267 billion Chinese goods could be announced.

Chinas responses have so far failed to thwart Mr. Trumps trade offensive, and with the White House amping up the fight again, Chinese leaders arent sure how to respond, people briefed on economic policymaking discussions say.

A buying spree by consumers and businesses looking to get ahead of the tariffs will add another distortion to an economy already revved up by a big stimulus and tax cut and already facing a tight jobs market and rising prices.

Chinese officials are generally confused, said Raúl Hinojosa-Ojeda, a trade specialist at the University of California, Los Angeles, who has been traveling around China speaking with officials, businesspeople and workers.

But if they do stock up, and a strong economy gives them the wherewithal to do it, the spending could boost growth through the end of the year. Businesses will likely step up their efforts to build China-made inventory.

They dont know what to do, he added. They worry that the tit-for-tat model is playing into Trumps hands.

Companies, which are focusing more on the trade spat than consumers, will import as much as they can from China before the tariffs hit. That is what happened ahead of the washing-machine and dryer tariffs.

China does not import nearly enough from the United States to target $200 billion in American goods — let alone the additional $267 billion in Chinese goods that Mr. Trump has threatened to tax.

With the two sides still willing to talk, the tariffs may never take effect. Consumers and businesses could hold off spending in the expectation of a settlement.

But Chinas leaders feel they cannot back down. They have presented the trade war as part of a broader effort by the United States to contain Chinas rise.

Mr. Trump has said as much, and did so again at a news conference on Tuesday. China has been taking advantage of the United States for a long time, and thats not happening anymore, he said.

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The Chinese public could see any effort to soothe tensions as capitulation. Some hard-liners want a more aggressive stance.

Lou Jiwei, who retired as finance minister in 2016 but is still the head of the countrys social security fund, suggested on Sunday that China could deliberately disrupt American companies supply chains by halting the export of crucial components mostly made in China. But Chinese trade experts dismiss that idea as impractical and not the governments position.

Video: US-China Trade War: Five Experts On Trumps Tariffs

Chinese officials know what they dont want to do. They have rejected one idea that would replace the matching tariffs with a more sophisticated system, said the people briefed on the discussions, who spoke on the condition of anonymity because of the fragility of the deliberations. That response — discussed in detail within the Commerce Ministry and other agencies — would have led to lower tariffs on American goods in dollar terms, which could be seen as a fig leaf to the White House.

Video: China responds to Trumps tariffs with $60B of its own

That approach would have recognized a potentially expensive new reality for Beijing: The tariffs may be here to stay. Mr. Trump is suffering from weak approval ratings and could lose influence in congressional elections in November. Democrats have opposed most of his agenda, but many have supported his attacks on trade with China. Even if Mr. Trump leaves office in two years, there is little guarantee that his China trade policies will be changed.

In Beijing, proponents of the new approach, which would scale down Chinas tariffs in dollar terms to reflect the lopsided trade imbalance between the two countries, say Chinese leaders could still revisit the idea because it offers them a way to contain the damage and soothe tensions.

Chinas leaders dont really want to engage in a dollar-for-dollar retaliation, said Yu Yongding, a prominent economist at the Chinese Academy of Social Sciences. Their purpose is to stop this trade war.

It could punish American businesses that depend on China. Already, its antitrust officials have effectively killed the $44 billion effort by Qualcomm, the semiconductor company, to buy a Dutch chip maker. China has also pledged to buy soybeans from other countries, but replacing voluminous American supplies will be difficult.

Other moves have already served as warnings, like delays at Chinese ports. Ford Motors Lincoln cars and other goods have sometimes been the subject of unusually lengthy customs inspections this summer, although the delays do not appear to have caused much financial harm.

It is certain that China will have other, invisible retaliation against the United States, said Mei Xinyu, a researcher at the Commerce Ministrys policy research and training academy.

But more drastic moves, like closing factories or encouraging consumer boycotts of American goods, could eliminate Chinese jobs. They could also permanently damage Chinas reputation as a place to do business and only accelerate corporate plans to look to other countries.

China could also guide its currency to a weaker level against the dollar. It has already nudged the currency a bit lower, making Chinese goods cheaper in the United States and partly offsetting the tariffs. But a weaker currency would make Chinas imports more expensive, raise the risk of inflation and lead to a potentially damaging flight of money out of the country. It could also provoke further American retaliation.

The trade war has hit only a small part of the Chinese economy for now, but the damage could add up. Higher tariffs on American goods raise the cost of essential imports like soybeans and microchips. China still derives a big chunk of growth from making smartphones, clothing, chemicals and a raft of other goods and selling them to Americans.

The battle began when the United States imposed tariffs on solar panels and washing machines. It has led to a global tit-for-tat targeting billions of dollars of goods.

Already its currency and stock market have weakened as the trade war has intensified. China has taken steps to shore up its economy, but they could take months or years to kick in.

China has offered small concessions to the United States, like lowering its tariffs on imported cars from everywhere to 15 percent, from 25 percent; the United States, however, charges 2.5 percent. China has also allowed foreign companies to own greater shares of Chinese insurers, banks, asset management companies and car factories.

The new plan that Chinese officials rejected in recent weeks could have been more warmly greeted by the White House.

Under that plan, the United States and China would each levy tariffs based on proportions of trade rather than dollar amounts, people familiar with the discussions said. Because the United States imports nearly four times as much from China as it exports, that would lead to tariffs at different values.

For example, the United States has already levied tariffs on $50 billion in Chinese goods, one-tenth of what it imports from China. Instead of matching that with tariffs on $50 billion in American-made goods, China would levy tariffs on one-tenth of such goods, totaling $13 billion to $15 billion, depending on the details.

Proponents of the plan say letting Washington impose more tariffs than Beijing would actually hurt the United States more because tariffs are ultimately paid by consumers and businesses in the countries that levy them.

The United States wants to hurt China by imposing tariffs on Chinese exports, Mr. Yu, the Chinese Academy of Social Sciences economist, wrote in a journal in July. In the end, it may be the United States itself that is hurt, he wrote.

But other Chinese trade experts say tariffs on equal fractions of trade would be too big a compromise.

Its unrealistic, its difficult in practice, its not doable, and its against basic trade rules, said Mr. Mei, the Commerce Ministry researcher.

Keith Bradsher is the Shanghai bureau chief for The Times, and previously served as Hong Kong bureau chief and Detroit bureau chief. He covered the creation of the World Trade Organization and North American Free Trade Agreement as a Washington correspondent for The Times in the early 1990s. Follow him on Twitter: @KeithBradsher.

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