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This Week In Trade

China announces retaliation against U.S. tariffs, blames U.S. for failed talks

Posted: May 13, 2019

China will increase tariffs on $60 billion worth of U.S. goods in response to the Trump administration’s decision to ramp up tariffs on $200 billion worth of Chinese goods from 10 to 25 percent, Beijing announced today.

According to an announcement from China’s State Council Customs Tariff Commission, 2,493 U.S. products will be subject to a 25 percent tariff, 1,078 products will be hit with a 20 percent tariff and 974 products will be subject to a 10 percent tariff. A 5 percent tariff on 595 products will also remain in place.

U.S. companies, which have been bracing for a rise in China’s tariffs, fear they could also face non-tariff retaliatory measures via more onerous licensing and regulatory requirements.

White House economic adviser Larry Kudlow told Fox Business on Sunday that talks with Beijing would continue, possibly at the June G20 summit in Osaka, Japan, where he said there was a “strong possibility” President Trump and Chinese President Xi Jinping would meet. The summit is scheduled for June 28-29.

“We are going to continue the talks as the president suggested in his tweet on Friday,” Kudlow said. “One of the sticking points right now is we would like to see these corrections in an agreement, which is codified by law in China -- not just a State Council announcement. We need to see something much clearer and, until we do, we have to keep our tariffs on. That’s part of the enforcement process as far as we are concerned.”

Kudlow reiterated that Trump felt the talks were dragging on “too long” and that the U.S. would not “accept any backtracking.”

“We want to be as sure as we can be, we don’t think the Chinese have come far enough,” he said, adding the talks would “probably” continue at the highest level in Japan. Kudlow said that last week, the Chinese invited U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin to visit Beijing, though there were “no concrete, definite plans yet” for them to do so.

China has fought back against criticism that it backtracked in negotiations and has blamed the U.S. for last week's trade talks not resulting in a deal. Chinese Vice Premier Liu He was in Washington, DC, on Thursday and Friday to meet with Lighthizer. Liu told Chinese reporters on Friday that it was irresponsible of the U.S. to claim China was “backtracking” while the two parties were negotiating, according to China’s state-run Xinhua news service.

Liu also laid out three demands Beijing has put forth in the talks with the U.S. First, the U.S. must agree to remove all Section 301 tariffs. He said the amount of additional Chinese purchases -- China has said it will buy more agricultural products, for one thing -- should be realistic, according to Xinhua, implying the U.S. must lower its demands in that area. The last demand is that the text of a deal be balanced, Liu said, adding that more discussions were needed on critical issues.

An editorial in Xinhua said China would not succumb to U.S. pressure or make concessions against its interests. “China will never give in on major issues of principle, resolutely defend the core interests of the country and the fundamental interests of the people and will not lose its national dignity at any time,” it said. “No one should expect China to swallow the bitter fruit that harms its core interests.”

The editorial also blamed the U.S. for the failure to reach a deal. “The U.S. side has turned its back on it and carried out extreme pressures to further impose tariffs on Chinese exports to the United States,” it said. “This has cast a shadow over Sino-U.S. economic and trade negotiations, which directly led to unsuccessful negotiations and responsibility entirely in the U.S.”

Chinese officials have touted the strength of China’s economy, citing a 6.4 percent growth in gross domestic product in the first quarter of 2019, as proof that it can withstand sustained U.S. pressure. But Kudlow suggested the U.S. tariffs would damage China’s economic standing.

“The Chinese will suffer GDP losses and so forth with respect to a diminishing export market and goods that they may need for their own … economy,” he said.

Tit-for-tat trade actions will cost the U.S. as well, he conceded. “Both sides will suffer on this,” Kudlow said, but the cost to the U.S. will be worth it because “politically, the country is completely behind the president and his tough approach to China.”

Trump, meanwhile, tweeted on Monday morning that there was no reason for U.S. consumers to pay the new tariffs. “Their (sic) is no reason for the U.S. Consumer to pay the Tariffs, which take effect on China today,” he tweeted about the tariffs that took effect three days prior. “This has been proven recently when only 4 points were paid by the U.S., 21 points by China because China subsidizes product to such a large degree,” he continued, without citing a source for his statistics. Trump may be referring to a 2018 study by EconPol Europe.

Consumers can also avoid the tariffs by buying products from “from a non-Tariffed Country, or you buy the product inside the USA,” he said in another tweet. “That’s Zero Tariffs.”

At the president’s direction, Agriculture Secretary Sonny Perdue is preparing another plan to compensate farmers for losses suffered because of Chinese retaliatory tariffs. “Just spoke with @POTUS -- while China may backtrack, @POTUS is steadfast in his support for U.S. farmers and directed @USDA to work on a plan quickly,” Perdue tweeted on Friday, adding that Trump “loves his farmers and will not let them down!”

Last year, USDA provided $12 billion in aid to farmers. “We’ve helped them before on lost exports, I think we had an authorization of $12 billion,” he said. “We will do it again if we have to.”

Perdue this week is in Japan, where he has reiterated his call for a quick trade deal that will reduce Japanese agricultural tariffs.

Meanwhile, electronic commerce negotiations at the World Trade Organization will resume in Geneva this week, with discussion of text-based proposals from some of the more than 75 members that have joined the initiative. The U.S. and others are pushing for provisions enshrining cross-border data flow and prohibiting data localization, which are at odds with China’s proposal. The U.S. and European Union will also have to resolve their differences on privacy exceptions, long a subject of tension between the two.

Cross-border data flow and a ban on data localization are key parts of proposals from the U.S. and other large economies like Japan, Brazil and the EU. China, notably, did not include provisions on those issues in its proposal, but did include a broad exception for a country's “cyberspace sovereignty.” The EU, meanwhile, declared privacy a “fundamental right” and proposed a broad exception for protecting personal information. The U.S. also included privacy protections, but has previously called the EU stance too expansive.

Trump is due by the end of the week to decide whether to impose trade restrictions on imports of autos and auto parts. Saturday marks 90 days after Trump received the Commerce Department’s report on the national security implications of auto and parts imports. Industry representatives have said they believe Trump will delay a decision, sources confirmed to Inside U.S. Trade. Reuters reported last week that the industry is anticipating a 180-day delay. The Section 232 statute allows for the president to delay a decision on whether to restrict imports by 180 days if he decides to enter into a negotiation that “limits or restricts the importation into, or the exportation to, the United States of the article that threatens to impair national security.”

The U.S. is involved in trade negotiations at varying levels with China, Japan and the European Union, but whether restricting auto and auto parts trade is part of those negotiations is murky. The U.S. has sought to exclude autos from its negotiations with the EU.

European officials will be in Washington, DC, for a second consecutive week to negotiate with their U.S. counterparts, according to an EU official. Talks this week will focus on WTO reform and increasing trade in liquefied natural gas and soybeans, the official said. -- Brett Fortnam (bfortnam@iwpnews.com) with Isabelle Hoagland (ihoagland@iwpnews.com) and Hannah Monicken (hmonicken@iwpnews.com)