Trade Companies bracing for Beijing’s retaliation in tariff dispute

Businesses were bracing yesterday for Beijing’s retaliation against President Donald Trump’s escalation of a tariff battle that threatens to disrupt a Chinese economic recovery.

Regulators threatened “necessary countermeasures” in response to Trump’s increase in tariffs Friday on USD200 billion of Chinese imports. But three days later, Beijing had yet to say what it might do.

In previous cases, China imposed tit-for-tat penalties immediately.

A foreign ministry spokesman said yesterday he had gotten no details about Chinese plans or high-level contacts since negotiations ended Friday without a deal.

“We are determined and capable of safeguarding our legitimate rights and interests,” said the spokesman, Geng Shuang. “We hope the United States will meet China halfway to address each other’s legitimate concerns.”

China is running out of U.S. imports for penalties due to their lopsided trade balance. Regulators have targeted American companies in China by slowing down customs clearance for shipments and processing of business licenses.

Officials appeared to be studying the potential impact on China’s economy before picking their next steps, said Jake Parker, vice president of the U.S.-China Business Council. Officials might be worried companies may shift operations out of China in response to “aggressive retaliatory actions,” he said.

“I assume this goes fairly high within China’s government before retaliatory actions are settled upon,” said Parker.

Additional penalties would hurt exporters on both sides, as well as European and Asian companies that trade between the United States and China or supply components and raw materials to their manufacturers.

The increases already in place have disrupted trade in goods from soybeans to medical equipment and sent shockwaves through other Asian economies that supply Chinese factories.

Forecasters warned Friday’s hikes could disrupt a Chinese recovery that had appeared to be gaining traction. Growth in the world’s second-largest economy held steady at 6.4% over a year earlier in January-March, supported by higher government spending and bank lending.

The tensions “raise fresh doubts about this recovery path,” Morgan Stanley economists Robin Xing, Jenny Zheng and Zhipeng Cai said in a report.

The latest U.S. charges could knock 0.5 percentage points off annual Chinese economic growth and that loss could widen to 1 percentage point if both sides extend penalties to all of each other’s exports, economists say. That would pull annual growth below 6%, raising the risk of politically dangerous job losses.

The latest talks ended with no word of progress after Washington accused Beijing of trying to backtrack on earlier commitments.

Trump might meet his Chinese counterpart, Xi Jinping, during next month’s meeting of the Group of 20 major economies in Osaka, his economic adviser, Larry Kudlow, said Sunday.

Chinese officials invited the top U.S. envoys — Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin —to Beijing, Kudlow said on Fox News. But he said there were no “definite plans.”

Trump started raising tariffs last July over complaints China steals or pressures companies to hand over technology.

Washington wants Beijing to roll back government support for Chinese companies striving to become global leaders in robotics and other technology. The U.S. and other trading partners say such efforts violate Beijing’s free-trade commitments.

A stumbling block has been U.S. insistence on an enforcement mechanism with penalties to ensure Beijing carries out its commitments. Economists say Chinese leaders probably reject that as a violation of Chinese sovereignty. Joe McDonald, Beijing , AP