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Home / Business

Trump's tariff threat to China sends global markets plummeting

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6 May, 2019 06:08 AM6 mins to read

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A man walks past a US fashion apparel store in Beijing. Photo / AP

A man walks past a US fashion apparel store in Beijing. Photo / AP

President Donald Trump raised pressure on China with a threat to hike tariffs on US$200 billion worth of Chinese goods in a tweet that sent global financial markets swooning on Monday.

Trump's comments on Twitter came as a Chinese delegation was scheduled to resume talks in Washington on Wednesday aimed at resolving a trade war that has shaken investors and cast gloom over the world economy.

Chinese government officials did not immediately respond to requests for comment.

For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday. 325 Billions Dollars....

— Donald J. Trump (@realDonaldTrump) May 5, 2019

Trump turned up the heat Sunday by saying he would raise import taxes on US$200 billion in Chinese products to 25% from 10% as of Friday.

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The Wall Street Journal, citing unidentified sources, said China's government was considering canceling this week's talks. Beijing has responded to previous US threats by saying it wouldn't negotiate under pressure.Stock markets fell on the news. The future for the Dow Jones Industrial Average lost 1.8% and that for the S&P 500 sank 1.6%. The Shanghai Composite index plunged nearly 6% while the Hang Seng in Hong Kong sank 3.1%. Japan's markets were closed for a holiday.

Trump had twice pushed back deadlines — in January and March — to raise the tariffs in a bid to buy more time for a negotiated settlement. But on Sunday, Trump, who has called himself a "tariff man," said he's losing patience. "The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!" Trump tweeted.

In his tweets, Trump also threatened to slap tariffs on another $325 billion in Chinese imports, covering everything China ships annually to the United States.

The two countries are locked in a high-stakes dispute over China's push to establish itself as a technological superpower.

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The US charges that China is resorting to predatory tactics — including cybertheft and forcing foreign companies to hand over technology — in a drive to establish Chinese companies as world leaders in advanced industries such as robotics and electric vehicles.

....of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!

— Donald J. Trump (@realDonaldTrump) May 5, 2019

Trump's threat makes going ahead with talks "very difficult politically" for President Xi Jinping's government, said Jake Parker, vice president of the US-China Business Council.

He said the Chinese public might "view this as a capitulation" if Beijing reached an agreement before Trump's Friday deadline.

And if Trump goes ahead, American companies in China "would be very concerned" about official retaliation, said Parker.

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A month ago, Trump predicted "something monumental" would be achieved in the next few weeks.

But last week, Treasury Secretary Steven Mnuchin seemed to temper expectations, suggesting that Washington was willing to "move on" if it can't get the deal it wants.

A man walks past a US fashion apparel store in Beijing. Photo / AP
A man walks past a US fashion apparel store in Beijing. Photo / AP

A substantive deal would require China to rethink the way it pursues its economic ambitions, abandoning or scaling back subsidies to its companies, easing up on the pressure for foreign companies to share trade secrets and giving them more access to the Chinese market.

"Every single sector is down." Here's the latest in markets after Trump's tweets. pic.twitter.com/c2elA9Zdtp

— Bloomberg (@business) May 6, 2019

Philip Levy, senior fellow at the Chicago Council on Global Affairs and a White House economist under President George W. Bush, said the talks are too complicated for Trump's high-pressure tactics to work.

"The president treats this like we're haggling over the price of a used car," Levy said.

Trump has made a priority of shaking up American trade policy.

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As a candidate for the presidency, Trump raged repeatedly about alleged Chinese perfidy — so much so that a video mashup of him spitting out the word "China" went viral and collected more than 15 million views on Youtube.com.

Trump charged that previous administrations, gullible and weak, had let China get away with abusive trade practices, accepting empty promises from Beijing and allowing the US-China economic relationship to grow ever more lopsided. As evidence, he pointed to America's vast US trade deficit with China — $379 billion last year, by far the biggest with any country in the world.

Once he took office, Trump's relationship with Xi seemed to get off to a good start. The two men shared chocolate cake and amiable conversation at Trump's resort in Mar-a-Lago, Florida, in April 2017. A few weeks later, China agreed to open its market US beef, cooked chicken, and natural gas in what Commerce Secretary Wilbur Ross called a "herculean accomplishment."

The romance faded. In March 2018, the Office of the US Trade Representative issued a report accusing China of using predatory tactics to strengthen its tech companies.

Last July, the Trump administration gradually began slapping import taxes on Chinese goods to pressure Beijing into changing its policies. It now has imposed 10% tariffs on US$200 billion in Chinese imports and 25% tariffs on another US$50 billion. The Chinese have retaliated by targeting US$110 billion in US imports.

The fight between the world's two biggest economies is raising worries about global economic growth. The International Monetary Fund, the World Bank, and others have downgraded their forecasts for the world economy, saying the US-China standoff is reducing world trade and creating uncertainty for companies trying to decide where to buy supplies, build factories, and make investments.

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Trump has portrayed his tariffs as a moneymaker for the United States and a benefit to the US economy.

But a March study by economists from the Federal Reserve Bank of New York, Columbia University, and Princeton University found that the burden of Trump's tariffs - including taxes on steel, aluminum, solar panels, and Chinese imports - falls entirely on US consumers and businesses who buy imported products. By the end of last year, the study found, they were paying $3 billion a month in higher taxes and absorbing $1.4 billion a month in lost efficiency.

Nonetheless, the overall US economy has remained healthy. On Friday, the government reported that the US unemployment rate had fallen to the lowest level in half a century.

Markets rallied.

But on Monday those gains were reversed as investors reversed course.

"This is a big surprise given the increasingly positive messages from the various US officials involved in the trade talks in recent weeks," said Tao Wang and Ning Zhang of UBS said in a commentary.

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"Certainly the risk of an all-out US-China trade war has increased significantly."

- AP

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