[The Trump administration has been pushing China not only to narrow its trade gap with the United States but also to institute major reforms on matters such as support for state-backed companies and intellectual property rights.]
By
Anna Fifield and David J. Lynch
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Chinese
Vice Premier Liu He, right, watches as U.S. Treasury Secretary Steven Mnuchin,
center,
swaps places with U.S. Trade Representative Robert E. Lighthizer before
talks
May 1 in Beijing. (Andy Wong/Pool/Reuters)
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BEIJING
— China warned Wednesday of
retaliation if President Trump goes through with his threat to further raise
tariffs on Chinese goods, setting up a potential escalation in a trade war that
had seemed just weeks ago to be nearing its end.
The trans-Pacific brinkmanship now spills
over to face-to-face negotiations as trade talks resume late Thursday in
Washington — just hours before Trump’s latest tariff threats are due to hit
$200 billion in Chinese products.
The Chinese warning — issued as China’s vice
premier arrived in Washington — signaled that Beijing was prepared to take the
same hard-line route as Trump and raise tariffs on American products in
response.
“An escalation in trade frictions is not in
line with the American or Chinese interests or the interests of the world, and
would thus be much to China’s regret,” a spokesman for the Commerce Ministry
said in a statement on its website.
“But if the U.S. goes ahead with its tariff
measures against China, China will have to resort to necessary
countermeasures,” the statement added.
Until just days ago, the two sides appeared
close to a deal, with Trump saying last month they were forging a “monumental”
and “epic” pact.
The Trump administration has been pushing
China not only to narrow its trade gap with the United States but also to
institute major reforms on matters such as support for state-backed companies
and intellectual property rights.
There appeared to be some headway. But then
Trump tweeted Sunday that China had attempted to renegotiate the
almost-completed deal.
He threatened to increase tariffs from 10
percent to 25 percent on Friday and to levy a new 25 percent fee on the
remaining $325 billion of Chinese imports “shortly” if there is no progress
toward a trade deal.
This sudden shift sent Asian financial
markets tumbling. Wall Street also has taken a hit. But U.S. investors
Wednesday were more sanguine, with the Dow Jones industrial average closing
almost unchanged.
Even before the next round of trade talks,
the Trump administration was on the offensive.
The U.S. trade representative’s office
released a Federal Register notice explaining the potential tariff hike and
taking a jab at China.
“In the most recent negotiations, China has
chosen to retreat from specific commitments agreed to in earlier rounds,” the
notice said.
Trump then sought to explain his assertions
of Chinese wobbling in terms of U.S. politics.
“The reason for the China pullback &
attempted renegotiation of the Trade Deal is the sincere HOPE that they will be
able to ‘negotiate’ with Joe Biden or one of the very weak Democrats, and
thereby continue to ripoff the United States,” the president tweeted.
China has responded with reciprocal measures
during earlier iterations of the trade war, slapping duties on American
soybeans, cars and other products.
There is not much time to avoid a possible
new barrage of tariffs between the world’s two biggest economies.
Liu He, the lead Chinese negotiator, is set
to meet with his American counterparts, Treasury Secretary Steven Mnuchin and
U.S. Trade Representative Robert E. Lighthizer, for talks scheduled to wrap up
Friday.
Still, Chinese authorities were trying to
reassure markets. And China’s state media has now swung into action.
Some state-shaped messages from Beijing were
pragmatic — acknowledging that there are “thorny structural differences between
China and the United States that are difficult to resolve at the moment.”
But the main tone was one of strength and
resilience.
“Tried and tested by the trade war for more
than a year, entrepreneurs and ordinary people in China have learned to handle
everything with grace and greater ease now,” state news agency Xinhua wrote in
a commentary published Wednesday. “Chinese society has weathered storms and is
now able to endure great stress. We have also learned that the world doesn’t
end, as long as we keep our own house in order.”
The overseas edition of the People’s Daily,
the mouthpiece of the Communist Party of China, described the Chinese economy
was “like a vibrant, vast forest with a solid foundation, strong resilience,
high quality and great potential.”
It can, the paper’s commentary continued,
“withstand the wind and rain from the outside environment as well as soaking up
the bright sunshine of win-win cooperation.”
Other state papers lauded China’s
surprisingly strong growth figures for the first quarter, which showed a
better-than-expected 6.4 percent expansion between January and March compared
with a year ago.
“Market confidence is picking up and positive
factors are setting in,” the Guangming Daily declared on its front page
Wednesday. “The Chinese economy has great resilience and huge potential.”
But statistics show a different story.
Trade data released Wednesday showed that
Chinese export growth was disappointing last month. The value of Chinese
exports fell 2.7 percent in April compared with the previous year, against
market expectations of 3 percent growth.
While the slump in domestic demand and
exploding debt levels are the main reason for China’s slowing economy, the
trade tensions are weighing heavily on it.
“If Trump follows through on his latest tariff
threats, we think this would drag down export growth by two to three percentage
points,” said Julian Evans-Pritchard, senior China economist at Capital
Economics. “And even if a last-minute deal is struck this week to avoid further
tariffs, the downbeat prospects for global growth will probably mean that
export growth remains subdued,” he wrote in a note to clients.
China’s trade surplus narrowed sharply to
$13.84 billion in April, according to data from the General Administration of
Customs. This was far below the $32.65 billion recorded in March and against
economists’ expectations that the surplus would grow.
There are other signs of trade-related stress
in the world’s second-largest economy.
Buyer numbers and export orders were down
during the three-week Canton Fair, organizers said when it wrapped up Sunday.
The trade fair, China’s largest, is held in the manufacturing powerhouse in the
south and is often viewed as a barometer for the health of the Chinese economy
and foreign trade conditions.
The stakes are high for Chinese President Xi
Jinping, who has a vision to make China a global superpower to rival the United
States and who has asserted strong control over the ruling Communist Party,
including by eliminating limits on his presidency.
“On some issues, Xi won’t budge, most obviously
on the right for China to pursue policies to make its technological base
competitive with the U.S. Any concessions here could be dangerous for him
domestically,” said Richard McGregor, author of a book about the Communist
Party and a China expert at the Lowy Institute in Sydney.
“But in other areas, it’s always been true
that some of Xi’s advisers would like to use the trade talks as an excuse to
push through reforms. The question is whether Xi goes along with them,”
McGregor said, referring to the structural reforms that the United States would
also like to see, such as eliminating the special treatment for state-owned
enterprises.
Lynch reported from Washington.
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