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China Promises Retaliation If Trump Raises Tariffs

U.S. President Donald Trump speaks as he hosts the U.S. Military Academy football team, the Army Black Knights, in the Rose Garden of the White House, May 6, 2019, in Washington, D.C. (Credit: Alex Wong/Getty Images)

U.S. President Donald Trump speaks as he hosts the U.S. Military Academy football team, the Army Black Knights, in the Rose Garden of the White House, May 6, 2019, in Washington, D.C. (Credit: Alex Wong/Getty Images)

Ratcheting up pressure just hours ahead of talks in Washington, China vowed Thursday to retaliate if President Donald Trump goes ahead with more tariff hikes in a dispute over trade and technology.

Beijing will be forced to impose “necessary countermeasures” if the increases take effect Friday as planned, the Commerce Ministry said. It gave no details of possible penalties.

Trump threw global financial markets into turmoil with Sunday’s threat to raise import duties on $200 billion of Chinese goods from 10% to 25%. Trump complained talks were moving too slowly and said Beijing was trying to backtrack on earlier agreements.

“China deeply regrets that if the U.S. tariff measures are carried out, China will have to take necessary countermeasures,” said a Commerce Ministry statement.

Stock markets fell for a third day Thursday after the volley of threats reignited jitters about global economic growth.

If talks break down and tariff hikes go ahead, “risks of a financial market collapse, extreme risk aversion and sharp slowdown in global growth will spike,” Philip Wee of DBS Group said in a report.

Japan’s market benchmark lost 1.0% and the Shanghai Composite Index shed 1.4%. Markets in Hong Kong and Seoul also retreated.

Before this week’s acrimony, both sides said negotiations were making progress, which helped to stabilize financial markets. But economists warned a deal might be further away than investors hoped.

Trump raised duties on $250 billion of Chinese imports starting in July over complaints Beijing steals or pressures companies to hand over technology. That includes a 25% charge on $50 billion of goods and 10% on $200 billion.

Washington is pressing Beijing to roll back government plans to help Chinese industries become global leaders in robotics and other fields. The United States, Europe, Japan and other trading partners say those violate Beijing’s market-opening commitments.

American officials also want Beijing to reduce subsidies they say violate Chinese free-trade pledges and to narrow its multibillion-dollar trade surplus with the United States.

Beijing responded with penalties on $110 billion of American imports, but is running out of goods for tariff hikes due to the two countries’ lopsided trade balance.

Chinese authorities already have extended retaliation beyond imports by targeting operations of American companies in China. Regulators have slowed down customs clearance for their shipments and delayed issuing licenses in finance and other industries.

Beijing has an array of other weapons including launching tax, anti-monopoly or other investigations that can hamper a company’s operations.

Chinese leaders see industry development directed by the Communist Party as a path to prosperity and global influence. They deny their plans violate Beijing’s trade commitments but have offered to change details that provoke the most foreign opposition.

“China is not afraid of conflict,” said the Global Times, a newspaper published by the ruling Communist Party’s People’s Daily that is known for its nationalist tone. It said Beijing has measures in place to “minimize losses” for its companies.

“Mentally and materially, China is much better prepared than its U.S. counterpart,” the newspaper said.

Despite such bluster, factories in Chinese coastal regions that serve the U.S. market have been devastated. Industries including electronics that the Communist Party is promoting as China’s economic future have suffered declines of up to 40% in sales to the United States.

That has increased pressure on President Xi Jinping, who political analysts say is facing criticism within the ruling party that he has failed to manage Trump.

Chinese exports to the United States plunged 13% from a year ago in April and are off 9.7% since the start of 2019. Total Chinese exports sank 2.7% in April, well below forecasts of growth in low single digits.

Imports of American goods tumbled 26%.

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