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Trade War

China hits back at US with $16bn tariffs, effective Aug. 23

Domestic politics stoke both sides of Washington-Beijing trade war

U.S. President Donald Trump continues to double down on economic nationalism heading into November's congressional races, while Chinese President Xi Jinping faces increased scrutiny from Communist party heavyweights.   © Reuters

WASHINGTON/BEIJING -- Beijing announced plans on Wednesday to impose additional 25% tariffs on $16 billion in U.S. imports, equal in scale and rate to Washington's levies on Chinese goods finalized the previous day. The added tariffs imposed by the U.S. mark the second tranche of duties announced back in June. Both measures take effect Aug. 23.

The duties announced by China's Commerce Ministry differ considerably from the original list released in June. The ministry removed crude oil from the list, likely because the country -- a net oil importer -- would suffer if high tariffs raised prices. But the range of autos subject to additional levies increases sharply.

In the announcement, the commerce ministry said "Once again, they have placed domestic law over international law. This is a very unreasonable practice," in criticizing Washington's latest round of 25% tariffs on $16 billion of Chinese goods.

As the U.S. and China continue their cycle of retaliatory tariffs, the political landscape in each country leaves little reason for leaders to back down, even as the trade war exacts a growing cost on the world's two largest economies.

With his hard line on China, President Donald Trump looks to apply the lessons of his surprise victory in the 2016 election to midterm congressional races in November that are likely to be closely fought. The ideas of former White House chief strategist Steve Bannon, the ideological polestar of Trump's campaign, are central to this effort.

Bannon played a key role in codifying Trump's "America first" philosophy, focusing on a protectionist vision of economic nationalism along with anti-immigrant sentiment and an isolationist foreign policy. The campaign's anti-establishment tone won over the white working-class voters whose support carried Trump to the presidency.

Bannon departed in August 2017, seemingly forced out amid clashes with other White House figures, particularly chief of staff John Kelly. But with the influence of Kelly and his allies waning and the midterms looming, Trump is turning to the formula that worked so well for him in 2016 as he seeks to motivate his base.

"In its substance, this is a Bannonite government," Financial Times columnist Janan Ganesh wrote last month. "More Bannonite, in fact, than when he was a part of it."

The ideology of former White House Chief Strategist Steve Bannon, seen here campaigning last December for a Republican Senate candidate in Alabama, has come to the fore heading into the midterm congressional races.   © Reuters

The Trump administration's tough stance on trade has pushed Chinese President Xi Jinping to respond in kind. Communist Party newspapers that earlier refrained from directly criticizing Trump have gone on the attack this month. Foreign Minister Wang Yi has made clear that China will respond to any U.S. trade offensives.

The change in tone comes amid signs of growing pressure on Xi from party elites and elders displeased with his tightening grip on power. Current and retired political heavyweights have reportedly gathered for their annual meeting at the seaside resort of Beidaihe, and the trade tensions with the U.S. top the agenda of the unofficial talks, a party source says.

After Xi met with Trump in April 2017, Beijing sought to tout more stable relations with Washington. Xi's government toned down criticism of the U.S., calling instead for peaceful coexistence. But with the two countries now mired in a trade war, some China watchers say Xi may be taking heat at Beidaihe for this cooperative stance.

Xi's position in some ways seems more solid than ever. He retains a firm base of support within the party, and a decision in March by the National People's Congress to eliminate presidential term limits leaves him set to rule beyond the end of his second five-year term in 2023.

But the trade war has left him more exposed to criticism on issues such as his appointment of close allies to key posts and his government's fawning propaganda. Tsinghua University law professor Xu Zhangrun recently released an essay denouncing Xi's cult of personality and the scrapping of term limits. Compromise with the U.S. would make it that much harder for the president to quiet his critics.

The difficult political calculus facing the two leaders has led both governments to make decisions that defy economic rationality, at the expense of businesses and consumers.

With the tariffs being imposed by the U.S. this month, about 70% of the list by value consists of machinery and electrical equipment. This includes many semiconductor-related items such as processors and memory chips -- essential parts for computers and servers.

American companies and lawmakers firmly oppose tariffs on chips and electronic components, which often are designed or produced by U.S. businesses in China. And the impact of duties on motors and other parts used widely in home appliances seems sure to ripple out to households.

Levies on plastic products, which comprise more than half the entries on the 279-item list, will reverberate through supply chains for industrial and consumer goods alike.

The Trump administration has threatened to impose a third round of tariffs in September covering $200 billion worth of imports, including finished goods such as refrigerators and washing machines, along with fruits, vegetables and seafood.

Nikkei staff writers Taisei Hoyama in Washington and Issaku Harada in Beijing contributed to this article.

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