President Trump on Friday defended his decision to impose steep tariffs on $200 billion worth of Chinese imports and promised much steeper penalties would follow, putting the rest of the world on notice that he will follow through on his protectionist agenda no matter the blowback.
In a series of tweets, Trump said that talks with Chinese leaders would continue, but he repeatedly warned that China should “not renegotiate deals with the U.S. at the last minute.”
White House officials accused China of reneging on prior details of the talks earlier this week, something Trump’s chief trade negotiator Robert E. Lighthizer told reporters was “unacceptable.” Chinese officials have denied backing away from any commitments.
The chain of events that began with higher tariffs and continued through Trump’s tweets have sown unrest in financial markets around the world and have left investors and business executives unsure of what is to come. Trump in the past has threatened severe penalties only to back down days later, but he has also shown a willingness to dig in and trust his instincts, even if advisers have warned against it. He believes the strength of the economy gives him leverage to use aggressive trade tactics.
“At this stage, it is difficult to envision this as a bluff anymore,” said Eswar Prasad, a senior professor of trade policy at Cornell University. “He seems deadly serious about taking on China in a broad economic confrontation irrespective of the consequences to the U.S. economy.”
The new tariffs largely impact business equipment, but will also affect $40 billion in consumer products like air conditioners, furniture, certain clothing and spark plugs. The financial impact of the tariffs could be delayed because it will only apply to products that left China on Friday, which often take two or three weeks to arrive from Shanghai. But business often pass these costs on to consumers, which could drive up prices across the country.
Lighthizer and Treasury Secretary Steven Mnuchin are expected to meet with China’s vice premier, Liu He, on Friday to continue negotiations. They met Thursday and were unable to avert the imposition of higher tariffs. But Trump’s tweets Friday could be interpreted as a signal to the Chinese that he will not back down.
In one of the tweets, Trump wrote that there was “no need to rush.” He claimed that the tariffs would “bring in far more wealth to our country than even a phenomenal deal of a traditional kind.” He also connected his approach with that of former Vice President Joe Biden, who is running for president and wants to challenge Trump in the 2020 election. Biden’s quick rise to the top of many polls in the Democratic primary has drawn the attention of top White House officials.
But trade experts and business groups have said Trump routinely misstates how tariffs work. Tariffs are taxes paid by U.S. companies that bring in products from overseas. So those costs are borne by companies like manufacturing firms, chemical producers, and others that rely on Chinese products. This drives up the cost of Chinese products, which Trump has said will help U.S. competitors, but it also pushes up the cost for U.S. companies that use Chinese products as well.
In another tweet, Trump said he was preparing to impose a 25 percent tariff on the remaining $325 billion in Chinese imports that have so far not been impacted. This is considered to be one of the most extreme penalties he has left to unload, and it could impact products purchased by virtually every American, including electronics, other clothing, and car parts, among other things.
Trump has for years complained that the U.S. buys more goods from China than China does from the U.S., referring to a trade imbalance that is unfair to U.S. workers and companies. Many companies, Democrats, and Republicans have agreed that China uses unfair trade practices to gain an advantage and hurt U.S. companies, but they have disagreed with his tactics of using tariffs to punish the Chinese. Trump has said the easiest solution would be for companies to move their factories back to the U.S. and make their products here instead of importing them, a change that would help U.S. workers.
But critics have said this vision of the economy is dated and doesn’t take into account the global forces that have shifted production all over the world in the past 40 years.
Thursday, the Commerce Ministry said China “deeply regrets” the decision to increase the tariffs and “will have to take necessary countermeasures.”
“We hope that the U.S. and China will meet each other halfway and make joint efforts to solve the existing problems through cooperation and consultation,” a spokesman said in a statement.
Chinese officials, however, did not say what precisely they would do in response. Some U.S. companies and farmers have said they are being caught in the crossfire of the trade war. China, for example, has halted much of its purchase of U.S. soybeans, leading soybean prices to plunge and putting many U.S. farmers on the brink of bankruptcy. China could decide to further restrict purchases of U.S. products, raise tariffs on U.S. goods, or take other steps.
Trump has been under pressure from farmers to back down on his trade threats, and he appeared to nod to those concerns on Friday. He claimed that the U.S. would use the money generated by the tariffs to purchase products from American farmers and “ship it to poor & starving countries in the form of humanitarian assistance.” It’s unclear how this would work, whether it would be legal, or what farmers would benefit. It could take an act of Congress, and Trump has so far tried to enact his protectionist trade agenda against China, Canada, Mexico, Japan, and the European Union without any interference from lawmakers.
During the 2016 campaign, Trump repeatedly vowed to overhaul the U.S.’s complicated trade relationship with China. The U.S. imports more than $500 billion in goods from China each year, often brought on giant ships that carry more than 1,000 containers. Trump and lawmakers from both parties have accused China of stealing U.S. intellectual property and creating unfair rules that require U.S. firms to reveal sensitive technology. And Trump has also alleged that China unfairly subsidizes its own companies in a way that makes it hard for private U.S. firms to compete.
But these issues have plagued the U.S. – China relationship for years, and Democrats and Republicans have struggled for ways to counter China’s behavior. Trump has said the only way to grab China’s attention is through tariffs and economic penalties.
Amid the first wave of severe tariffs last year, Chinese leader Xi Jinping agreed to hold formal negotiations with the White House in an effort to avoid an escalation. Those talks continued for several months, and when some U.S. officials briefed Trump they gave him an upbeat assessment of where things were heading.
During an April meeting with Chinese vice premier Liu He, Trump touted the prospects “epic” trade deal. He also said it would be “monumental” and the “granddaddy of them all.”
During the months’ long talks, both sides discussed issues like currency manipulation, intellectual property rights, and even the prospect of China purchasing billions of dollars in additional U.S. agriculture production.
But Chinese officials were frequently vague when it came to agreeing to specific commitments, something that worried U.S. officials as the talks dragged on. And Mnuchin and Lighthizer returned from a trip to Beijing last week with bad news for Trump, telling him that their Chinese counterparts had – in their view – pulled back from agreements they had thought were already set. This is what led Trump to create Friday’s deadline, something many people thought would never take place.
Chinese stock markets, after suffering big losses earlier in the week, actually gained on Friday. The Shanghai Composite Index rose 3.1 percent and the Shenzhen Component Index gained 4 percent.
The stock market opened a bit down following Trump’s tweets, with the Dow Jones industrial average dropping around 90 points in early morning trading. With Thursday’s close, the three major indexes were on course for their worst week of 2019.
Anna Fifield contributed to this report.
