U.S. Readies New Tariffs as Trump Says He’ll Meet China’s Xi

Date: May 15, 2019
Source: Bloomberg
MEMA Industry News Editor’s Note: In previous statements, MEMA has called for an agreement that will allow U.S. companies to remain competitive in a global marketplace while protecting intellectual property (IP) rights. MEMA supports bilateral engagement, where China and the U.S. work together to protect the valuable IP of our members. More information about the China tariffs is here and detailed information about tariffs as well as other recent trade actions can be found on the MEMA Trade Resources Page. For more information about MEMA’s trade positions, contact Catherine Boland.
 
The U.S. prepared to hit China with new tariffs even as President Donald Trump said he’ll meet his Chinese counterpart, Xi Jinping, at next month’s G-20 summit, an encounter that could prove pivotal in a deepening clash over trade.
 
The U.S. Trade Representative’s office on May 13 released a list of about $300 billion worth of Chinese goods including children’s clothing, toys, mobile phones and laptops that Trump has threatened to hit with a 25 percent tariff.
 
If Trump proceeds with the tariffs, it would see almost all imports from China covered by punitive import duties. It also would turn the president’s trade wars into a tangible reality for many Americans as he seeks re-election.
 
At the same time, Trump is sounding optimistic about the chances of a deal. U.S. equity futures rose alongside European stocks on May 14 while shares in Asia dropped. Shares in Shanghai posted a modest decline, while Hong Kong equities slumped as the market re-opened after a holiday.
 
“When the time is right we will make a deal with China. My respect and friendship with President Xi is unlimited but, as I have told him many times before, this must be a great deal for the United States or it just doesn’t make any sense,” Trump tweeted on May 14.
 
Under a process outlined by U.S. officials, the new tariffs would not take effect until late June at the earliest. But that could come just as Trump meets with Xi on the sidelines of a Group of 20 leaders meeting June 28-29 in Osaka, Japan, raising the stakes in an already escalating trade war.
 
Earlier on May 13 Trump warned Beijing not to go too far in responding to U.S. trade actions after China rolled out its retaliation to his move to hike import duties on a separate $200 billion tranche of imports from China last week.
 
“There can be some retaliation, but it can’t be very substantial,” Trump told reporters on May 13 at the White House during a meeting with Hungarian Prime Minister Viktor Orban.
 
The release of the additional tariffs list and the continuing escalation it signals drew an outcry from business groups who have been lobbying against the duties. USTR said that the new tariffs would not apply to pharmaceuticals or rare earths.
 
“We support the administration’s efforts to deliver a meaningful trade agreement that levels the playing field for American businesses and workers,” Matthew Shay, president and CEO of the National Retail Federation, said in a statement. “But the latest tariff escalation is far too great a gamble for the U.S. economy.”
 
Economists have warned that the existing tariffs would hurt U.S. growth. But they are also worried an escalation to cover all trade from China and the Chinese retaliation it would provoke would do far more damage and could even tip the U.S. economy into recession.
 
China announced on May 13 its plans to raise duties on some $60 billion in American imports starting June 1, defying a call from Trump to resist escalating the trade war.
 
Less than two hours after Trump tweeted a warning that “China should not retaliate -- will only get worse!” the Ministry of Finance in Beijing unveiled the measures on its website. The new rate of 25 percent will apply to 2,493 U.S. products, with other goods subject to duties ranging from 5 percent to 20 percent, it said.
 
Higher U.S. tariffs will drive up the Federal Reserve’s preferred measure of underlying inflation, and further escalation could raise consumer prices even more and dent U.S. growth, Goldman Sachs Group Inc. economists said in a research note.
 
China’s move to hike tariffs came in response to the U.S.’s decision last week to increase levies on $200 billion in Chinese imports to 25 percent from 10 percent. Trump on May 13 accused China of backing out of a deal that was taking shape with U.S. officials, saying Beijing reneged on an agreement to enshrine a wide range of reforms in Chinese law.
 
“I say openly to President Xi & all of my many friends in China that China will be hurt very badly if you don’t make a deal because companies will be forced to leave China for other countries,” Trump wrote on Twitter. “You had a great deal, almost completed, & you backed out!”
 
China has been careful to calibrate its response. The Chinese list released on May 13 matched Trump’s latest move in that it simply hikes the duties on a list of thousands of items that had already been targeted in an earlier phase of the trade war.
 
Beijing’s retaliation on about $60 billion of U.S. goods includes extra tariffs of as much as 25 percent on goods ranging from small aircraft, computers, and textiles to chemicals, meat, wheat, wine and LNG. Some auto parts remain exempted from retaliatory charges. Imports of cars aren’t affected, as an extra duty of 25 percent from a separate list was suspended during the negotiations as a sign of goodwill.
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