Trump wants to apply $50B in tariffs on Chinese goods, taking 1st shots in trade war
Dow Jones off by almost 500 points, even though details on tariffs won't be known for 2 weeks
Donald Trump signed a presidential memorandum on Thursday that will give trade officials two weeks to come up with a list of Chinese-made products on which to put tariffs, with the goal of slapping $50 billion US in punitive damages on a country the U.S. says doesn't trade fairly.
A little after noon ET in Washington, the U.S. president signed a document instructing the Treasury Department to look at implementing tariffs on a wide swath of Chinese-made products, under the guise of fighting back against unfair trading practices.
"The word I want to use here is reciprocal," the president said, citing the example of tariffs that Chinese companies put on American cars. "When they charge 25 per cent and we charge 2.5 per cent that's not reciprocal," he said.
"That's how China rebuilt itself."
China said it was "strongly disappointed" but, through its embassy in Washington, D.C., said it won't back down from a fight.
"If a trade war were initiated by the U.S., China would fight to the end to defend its own legitimate interests with all necessary measures," the embassy said in a statement.
Unlike the move earlier this month to put tariffs on steel and aluminum, Thursday's memo didn't specify a list of products destined to see tariffs.
Rather, it gives officials 15 days to come up with a list of products tailored to do $50 billion US in economic harm to China, while minimizing the impact on American consumers and companies. Trade officials have already identified a list of 1,300 different product lines that could be hit by the tariffs, and will now come up with a list of specific products within two weeks. After that, there will be a consultation period on the final list, at which point the tariffs will be implemented.
United States trade representative Robert Lighthizer flanked the president at the signing ceremony and celebrated the move. "Technology is probably the most important part of our economy," he said, noting that some 44 million American workers are employed in high tech areas impacted by Chinese policies.
"This is an extremely important action [and] very important for the future of the country," Lighthizer said.
Stock markets started reacting even before the news came out, with the Dow Jones Industrial Average off by 724 points or almost three per cent, and the technology-heavy Nasdaq off by about 2.4 per cent.
The Nasdaq took a heavy hit, because the types of products likely to be targeted could be high tech, heavily represented among its listings. A senior administration official said the list of targeted sectors will borrow heavily from China's own pronouncements on industries into which it is aggressively trying to expand, including aerospace, rail, high-tech infrastructure, artificial intelligence and robotics.
Aerospace and the other sectors mentioned are all listed in a document called "Made in China 2025," which the administration says is the framework for the tariff plan because it lays out China's economic strategy moving forward.
"It's basically China's blueprint for domination in the industries of the future," the official said. "These tariffs are designed to compensate the U.S. for the harm that their policies have imposed on America."
The U.S. alleges that China is an unfair trading partner in that it requires foreign companies to surrender all of their technology to do business in China, and only allows them minority stakes in the Chinese subsidiaries they set up.
China then uses that technology to compete with U.S. companies in China and around the world, the administration alleges. Since 2001, when China joined the World Trade Organization, China's economy has grown from $1 trillion to almost $12 trillion, a time when the U.S. economy has comparatively "sputtered," as the official put it.
It's a key problem in the aerospace industry, which is why Lockheed Martin CEO Marilyn Hewson was on hand at the signing ceremony.
Intellectual property in the aerospace and defence industries "is a threat to us — if we have that stolen from our companies — because that is the lifeblood of our companies."
"We very much welcome this action," she said.
The United States will also pursue litigation in the World Trade Organization to address what the administration calls China's discriminatory licensing practices.
The Trump administration is fond of repeating its claim that China has a $370 billion trade surplus in goods with the U.S., and cites internal research suggesting that every billion dollars in trade deficit works out to a loss of about 6,000 U.S. jobs. As a result of China's trade policies, there are today two million more jobs in China than there would otherwise be, and two million fewer in the U.S., the senior White House official said.
The exact nature of the tariffs isn't known yet, but several influential U.S. groups have already come out against them. The National Retail Federation says it has issues with China's trade policies, but says tariffs are the wrong way to combat them.
"Holding China accountable for refusing to follow global trading rules is important and necessary, but instead, the tariffs proposed by the administration will punish ordinary Americans for China's violations," the group said in a release. "Engaging in a trade war will … result in higher prices for a wide range of consumer products and basic household goods."
It's not just higher prices for consumers in the U.S., either. The tariffs are almost certain to incur retaliatory moves in China on a slew of U.S. exports, including agricultural commodities, including soybeans, sorghum and live hogs, said Chris Krueger, a strategist at Washington D.C.-based research firm Cowen Research.
"The only thing harder to predict than Trump's trade agenda is the Chinese response," Krueger said, noting that any reaction won't necessarily be as limited or targeted as the U.S. actions are. For starters, Trump is taking the action under the rarely invoked Section 301 of the Trade Act of 1974, legislation that comes with all sorts of rules and regulations around it.
"China is not bound by these statutes and can get far more creative — and quick — with retaliation," Krueger said.
Reaction from Beijing has been swift, with China's Commerce Ministry saying "with regards to the Section 301 investigation, China has expressed its position on many occasions that we resolutely oppose this type of unilateral and protectionist action by the U.S."
"China will not sit idly by while legitimate rights and interests are hurt. We must take all necessary measures to firmly defend our rights and interests," the ministry added.
With files from Reuters