Threat of US tariffs on China could result in fairer, freer trade deal

UPDATE 2 — 4/10, 11:17 a.m. EDT: Speaking Tuesday at an annual business conference in Boao, China, President Xi Jingping said Beijing will work to implement more free trade policies in the coming year and address concerns about intellectual property theft.

Specifically, Xi said China will lower automobile tariffs “significantly” and allow more than 50 percent foreign ownership of car companies within the country’s borders.

Experts say the Chinese president’s comments signal a compromise with the U.S. on trade issues is likely.

 

UPDATE — 4/6, 9:21 a.m. EDT: Responding to China’s retaliatory move, President Trump on Thursday suggested the Office of the U.S. Trade Representative impose tariffs on $100 billion worth of Chinese imports. 

U.S. equity futures dropped immediately upon the announcement by as much as 1.6 percent, as Trade Representative Robert Lighthizer said the president’s call was “an appropriate response to China’s recent threat of new tariffs.”

The Chinese Commerce Ministry issued a statement Friday saying it will fight “at any cost” against U.S. “protectionism”.

 

In an expected move Wednesday, the Chinese government announced an additional 25 percent tariff on $50 billion worth of U.S. imports, retaliating against a similar measure initiated by the Trump administration in late March.

While an American tax on China’s imported goods has yet to take effect, President Trump ratcheted-up the rhetoric Wednesday morning on Twitter.

While future negotiations between the two countries are likely and may result in lower trade costs and perhaps further business integration, a glitch in such talks allowing for the proposed tariffs to go into effect would hurt the U.S. economy, particularly farmers.

Included on the Chinese list of imported U.S. agrarian goods subject to tariffs are soybeans, cotton, corn, wheat, beef, tobacco, whiskey, cranberries and orange juice.

In addition, American manufacturing may be negatively effected, as most vehicles, aircraft and a variety of chemical and plastic products would also be taxed.

Proposed U.S. tariffs on Chinese products, announced Tuesday, include those in the technology and aerospace sectors. The White House said the move was a response to Beijing’s unfair trade practices which include alleged intellectual property theft and currency manipulation. 

Sliding into negative territory at the start of trading Wednesday, U.S. equity markets have since recovered, with the S&P 500 and NASDAQ indexes both gaining well over one percent by the end of the day.

“I think the market is just concerned about this thing escalating right now,” said James Paulsen, a chief investment strategist. “It’s not so bad if we have a few tariffs on a few products, but if it escalates worldwide . . . then you’re really threatening the recovery globally.”

The White House’s chief trade adviser, Peter Navarro, apparently isn’t concerned about a potential trade war with America’s largest economic rival, pointing out in an interview earlier in the day that China has “a lot more to lose in any escalation in this matter.”

“[L]et’s remember, we buy five times more goods than they buy from us.” he said. “[W]e cannot continue to ship our goods and our jobs and our factories off to China and have a strong economy and a strong national defense.”

 

Editor’s note: This article has been updated.

 

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