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Trade war

Trump doubles down on Chinese tariffs in war of nerves

Washington and Beijing both use North Korea card to gain advantage

U.S. President Donald Trump is raising the stakes in the trade dispute with China.   © Reuters

WASHINGTON/BEIJING -- Sino-American trade tensions have entered a game of chicken after U.S. President Donald Trump threatened another round of tariffs on $200 billion in Chinese imports, and Beijing is vowing to respond again with its own levies.

Both Trump and Chinese President Xi Jinping have been reaching out to North Korean leader Kim Jong Un, trying to use Pyongyang as a wild card to gain an advantage in the looming trade war.

"Chinese people may no longer be able to watch Hollywood blockbusters," Hu Yifan, chief China economist at UBS Wealth Management, told Nikkei. Hu predicts that China's response to Trump's latest tariffs would come in the shape of nontariff measures, such as restricting the sale of group tours to the U.S. or the showing of American movies.

That is because China is running out of ways to counter Trump's threats of additional tariffs.

After announcing on Friday a 25% tariff on $50 billion worth of Chinese goods, Trump raised the stakes on Monday by directing U.S. Trade Representative Robert Lighthizer to identify another $200 billion of Chinese exports for tariffs of 10%.

While Beijing quickly hit back on Friday's announcement with equivalent retaliatory tariffs on American goods, it simply said it will retaliate with measures of "the same scale and intensity" after the Monday announcement by Trump. China cannot match Trump's $200 billion threat, since the country only imports $130 billion or so of goods a year from the U.S. The Chinese Commerce Ministry raised the possibility this time of "comprehensive measures combining quantity and quality."

But Trump's threat could prove a double-edged sword. Targeting another $200 billion of products from China would mean imposing tariffs on nearly half of all goods imported from there. Higher levies on such consumer products as mobile phones and computers would affect ordinary Americans as well and could even weigh down the broader U.S. economy.

A twist to the trade tensions is the North Korea card that both sides are playing. After showing some consideration toward Xi on trade matters, such as moving to ease sanctions on telecommunications equipment maker ZTE, Trump clearly toughened his stance on China after his June 12 summit with Kim in Singapore.

Chinese state TV reported about North Korean leader Kim Jong Un's visit to Beijing on June 19, faster than is customary.   © Kyodo

Trump told reporters on Friday that he had given a "very direct number" to Kim. "I can now call him" and "he can now call me if he has any difficulty," the American leader said, suggesting that he no longer needs Beijing as a go-between.

But China is doubling down on its own relationship with North Korea. Just two hours after Trump directed Lighthizer to consider the new tariffs, Chinese state media reported that Kim had arrived in Beijing for a meeting with Xi. This was the first time for the Chinese media to announce the arrival of a North Korean leader in real time.

It is believed to be a message to Trump, who until now has said that his trade policy toward China will depend on Beijing's cooperation on North Korean issues.

The escalating tensions with Beijing also reflect the growing clout of China hawks in the Trump administration. Earlier, the more moderate faction led by Treasury Secretary Steven Mnuchin had the upper hand. The countries agreed at trade talks in Washington this May to boost Chinese purchases of American exports, with Mnuchin saying in a television appearance around the time that the trade war was "on hold."

But Lighthizer repeatedly pushed the White House on the need for tariffs against China. With U.S. media claiming a Chinese victory on trade, Trump began publicly voicing dissatisfaction with the negotiations. White House trade adviser Peter Navarro, another China hawk, dismissed Mnuchin's remark as an "unfortunate soundbite."

Navarro told reporters on Tuesday that Washington had asked for a $200 billion reduction to China's trade surplus with the U.S. in two years and for China to halt forced technology transfers from American companies. But Beijing has so far made no progress, he said, defending Trump's actions.

"The president is willing to talk to anybody anytime about these matters, as is our trade team, but the fundamental reality ... is that talk is cheap," said Navarro, who called the tariffs "a necessary defense of the crown jewels of American technology and intellectual property" against Chinese theft.

Tensions could continue rising until July 6, when the first round of American and Chinese tariffs would kick in. "The Trump administration's secret weapon is an embargo," a source familiar with the matter said. The "Made in China 2025" initiative aims to bolster that nation's high-tech industries, including through domestic manufacturing of semiconductors. But the U.S. controls much of the market for chipmaking equipment. There is also speculation that the Chinese could boycott American products.

The markets reflect growing concerns over a full-blown trade war between the world's two largest economies. About 90% of issues on the first section of the Tokyo Stock Exchange fell in Tuesday trading, and the Nikkei Stock Average ended down 1.77% at 22,278.48. The Shanghai Composite Index sank 3.78% to a roughly two-year low of 2,907.82. In New York, the Dow Jones Industrial Average was trading down around 300 points through much of the day.

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