US dials up tariff action against China

US president Donald Trump's administration plans to step up its tariff action against China while putting on hold trade disputes with other major trading partners.

Trump has directed US trade representative Robert Lighthizer to consider raising to 25pc a planned tariff on an additional $200bn/yr of imports from China, up from an original 10pc proposal. That action — likely to be put into effect in September — follows tariffs on steel and aluminum, in effect since March, and a 25pc tariff on $34bn/yr of imported products, in effect since July. A 25pc tariff on an another $16bn/yr of imports likely will go into effect later this month.

"The president will continue to hold China responsible for the unfair trade practices. We will continue to hold their feet to the fire," the White House said.

Beijing pledged to reciprocate. "The threat of further tariffs can only be counterproductive, and pressure and blackmail by the US will not work," China's foreign ministry said.

The escalation of the trade dispute with China is worrying US business and energy sector interests. The planned Chinese retaliatory tariff targets exports of crude, gasoline and diesel, and other energy commodities, with the exception of LNG. All in all, the proposed tariffs would affect nearly the entire volume of US exports to China, and about half of the goods it imports from the country.

The ongoing trade dispute also has Republicans in Congress worried about potential spillover on the US economy. US consumers will have to bear the brunt of the tariff measures — potentially a $62.5bn/yr tax. But Trump and his cabinet members say there is no reason to worry as the economy is strong and US consumers are patriotic.

"We have to take a very aggressive step, and the best time for that is when the economy is really strong," US commerce secretary Wilbur Ross said on 30 July at a US Chamber of Commerce event. "That is the right environment to do that, because there is more capacity in the economy to absorb whatever short term impacts."

Economic activity has been rising at a strong rate, and consumer spending and investment have grown strongly, the Federal Reserve said today. US real GDP growth shot up to 4.1pc in the second quarter — the fastest since early 2014 — although most economists expect that to be a one time boost from tax cuts enacted late last year.

Trump, at a political rally yesterday in Tampa, Florida, said that US farmers — already hit by Chinese tariffs — do not mind doing their bit in the trade war. "I want to thank our farmers, our farmers are true patriots. And you know what our farmers are saying? It is 'OK, we can take it.'"

Just to make sure, the administration has already announced a $12bn aid package for the affected farmers.

US senators have asked the US Trade Representative's office to consider aid measures for other industries affected by Beijing's retaliation.

And Beijing, in turn, pledged to continue "a proactive fiscal policy and prudent monetary policy" in response to new challenges to its external environment, following a meeting yesterday of China communist party's politburo.

The US administration says a negotiated solution with Beijing is still a possibility. "But for negotiations to be fruitful, China will have to come to the table and address our rightful concerns," a senior administration official said today. "There are conversations on whether we can have fruitful negotiations. We are trying to figure out if conditions present themselves."

Beijing has outlined possible areas of compromise, based on measures Chinese president Xi Jinping announced in May that include broadening market access, offering to strengthen intellectual property rights for foreign companies and reducing tariffs on imported automobiles and consumer goods.

US treasury secretary Steven Mnuchin and Xi's top economic adviser, vice-premier Liu He, reached a preliminary agreement in May for China to boost imports of energy and agricultural products from the US in a bid to de-escalate the bilateral trade dispute. But Trump set that agreement aside, and his trade advisers have outlined a strategy to compel China to make lasting changes to its trade and investment practices to benefit US companies.