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Trade war

China sees 'no choice but to counter' latest US tariffs

Trump's 10% levy on $200bn of goods threatens to sabotage negotiations

U.S. President Donald Trump has escalated the trade war with China with a fresh round of tariffs.   © Reuters

NEW YORK -- The Trump administration pulled the trigger on tariffs Monday, imposing a fresh set of import duties targeting roughly $200 billion in Chinese goods and prompting swift pushback from Beijing.

A 10% tariff on the list will take effect Sept. 24, giving affected U.S. businesses time to adjust before a 25% rate kicks in on Jan. 1. "Further, if China takes retaliatory action against our farmers or other industries, we will immediately pursue ... tariffs on approximately $267 billion of additional imports," President Donald Trump said in a statement released by the White House.

The trade war escalation appears likely to sabotage plans for an upcoming round of negotiations. China is reviewing plans to send a delegation to Washington, the South China Morning Post reported on Tuesday, citing a government source in Beijing.

China's Ministry of Commerce released a statement on Tuesday, calling the U.S. announcement "seriously regrettable" and saying Beijing has "no choice but to counter simultaneously."

The ministry said the new tariffs throw a shroud of uncertainty over the negotiations, and said it hopes the U.S. will realize its approach is counterproductive and will change course.

U.S. Treasury Secretary Steven Mnuchin, a trade dove, had extended the invitation to restart high-level negotiations last week to Chinese Vice Premier Liu He. Monday's statement dims the prospect of holding those talks, tentatively set for Sept. 27 and Sept. 28 in Washington.

"Dialogue and consultation on the basis of equality, good faith and mutual respect make the only viable way out for the China-U.S. trade issues," Chinese Foreign Ministry spokesperson Geng Shuang told reporters Monday.

The Trump administration's latest move targets consumer products in a way that the tariffs previously imposed on a combined $50 billion in Chinese goods did not. A senior Trump administration official said around 300 tariff lines were removed from the original list -- which had included more than 6,000 Chinese products -- to accommodate input offered at public hearings on the proposed measures.

A number of consumer electronics, including smartwatches like Apple's Watch and Bluetooth devices, as well as certain chemical inputs and health and safety goods, are among the products that were removed from the final list in response to requests from the public.

Asia's stock markets had a muted reaction to Trump's announcement. China's benchmark Shanghai Composite Index gained slightly in early trading on Tuesday, while Hong Kong's Hang Seng Index fell. South Korea's Kospi fluctuated between gains and losses.

In Taiwan, key Apple Watch maker Quanta Computer's shares advanced more than 1.5% in morning trading, but smaller rival Compal Electronics dropped more than 0.5%. Shares of iPhone assembler Foxconn Technology Group, traded as Hon Hai Precision Industry, fell by more than 2% at one point.

Rajiv Biswas, Asia-Pacific chief economist at IHS Markit, said the "immediate impact of the 10% tariff rate will be limited" because it will be offset by the depreciation of the Chinese yuan against the U.S. dollar. But he warned that "if no U.S.-China trade deal can be reached by the end of 2018 and the U.S. tariff rate escalates to 25% ... the impact on China's export sector will be far more significant."

Trump has prioritized a balancing of the trade deficit with China and views tariffs as an effective means of pressuring Beijing to change what his administration deems "unfair trade practices."

"It will be a lot of money coming into the coffers of the United States of America -- a lot of money coming in," Trump told reporters at the White House on Monday ahead of the announcement.

Trump tweeted earlier in the day that tariffs have put Washington in a "very strong bargaining position." Saying billions of dollars, and jobs, have been flowing into the country with minimal cost increases, the president wrote: "If countries will not make fair deals with us, they will be 'Tariffed!'"

Peter Morici, an economist and professor emeritus of business at the University of Maryland, said the difference between 10% and 25% tariffs is "enormous" and would change the outcome of the trade war.

"China has many levers and can negate half of the 10% tariffs just by lowering their currency and have state banks lend money to Chinese companies that will never have to be repaid," said Morici, who has advised the Trump administration on tariffs and whose praise the president cited in a Monday tweet.

"If a 25% tariff was implemented, China will start having to dump all sorts of things to Japan and the European Union, and then our allies will have to act," he said. "China can live without the U.S., but it can't live without the U.S., the EU and Japan."

Back in July, the U.S. increased levies on $34 billion worth of Chinese products. This was followed by a 25% tax on another $16 billion worth of goods in August.

The senior administration official who spoke about the revised list justified the new tariffs as a way to confront China's problematic behavior, such as theft of intellectual property. "We've negotiated and negotiated and negotiated and given them chance after chance after chance," he said. "Up to this point, they have remained obdurate."

"China has had many opportunities to fully address our concerns," Trump said in his statement. "Once again, I urge China's leaders to take swift action to end their country's unfair trade practices. Hopefully, this trade situation will be resolved, in the end, by myself and President Xi [Jinping] of China, for whom I have great respect and affection."

Nikkei Asian Review Chief Desk Editor Ken Moriyasu and Nikkei Staff Writer Akihide Anzai in Tokyo contributed to this report.

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