US President-elect Donald Trump. Picture: REUTERS
US President-elect Donald Trump. Picture: REUTERS

Beijing/Shanghai — China urged the US on Friday to "pull back from the brink" as President Donald Trump’s plans for tariffs on up to $60bn in Chinese goods brought the world’s two largest economies closer to a trade war.

The escalating tension between Beijing and Washington sent shivers through financial markets, as investors foresaw dire consequences for the global economy if trade barriers start going up.

Trump is planning to impose the tariffs over what his administration says is misappropriation of US intellectual property.

A probe was launched last year under Section 301 of the 1974 US Trade Act.

Responding to the US import tariffs on steel and aluminium — which went into effect on Friday, but were announced by Trump earlier this month — China unveiled plans to levy additional duties on up to $3bn of US imports including fresh fruit, wine and nuts.

"China doesn’t hope to be in a trade war, but is not afraid of engaging in one," the Chinese commerce ministry said on Friday.

"China hopes the US will pull back from the brink, make prudent decisions, and avoid dragging bilateral trade relations to a dangerous place."

In a presidential memorandum signed by Trump on Thursday, there will be a 30-day consultation period that starts only once a list of Chinese goods is published.

That effectively creates room for potential talks to address Trump’s allegations on intellectual property theft and forced technology transfers.

Trump said he viewed the Chinese as "a friend", and both sides were in the midst of negotiations.

The inevitable fall in demand from a full-blown trade war would spell trouble for all the economies supplying the US and China.

Feeling the chill, MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 2.4%, tracking a large overnight fall in Wall Street shares, but perceived safe havens such as government bonds gained.

"The upshot is that today’s (US) tariffs amount to no more than a slap on the wrist for China," Mark Williams, Chief Asia Economist at Capital Economics, wrote in a note.

"China won’t change its ways. Worries about escalation therefore won’t go away."

Williams estimated that the $506bn that China exported to the US drove about 2.5% of its total gross domestic product, and the $50bn-$60bn targeted by the US tariffs contributed only 0.25%.

Trump, however, appears intent on fulfilling election campaign promises to reduce China’s huge trade surplus with the US.

AmCham Shanghai president Kenneth Jarrett said: "The American and Chinese governments should resolve existing trade frictions in a way that averts a trade war and promotes open markets and fair economic exchange. As our members increasingly tell us, however, the current trading relationship is neither open nor fair.

"It is time for China to take remedial action and show that it is a true partner in global trade."

‘DRawing its bow’

Alarm over Trump’s protectionist leanings mounted earlier this month after he imposed hefty import tariffs on steel and aluminium under Section 232 of the 1962 US Trade Expansion Act, which allows safeguards based on "national security".

That measure had not targeted Chinese imports alone.

On Friday, the Chinese commerce ministry said China would levy duties on up to $3bn of US imports in response to the steel and aluminium tariffs, which appeared modest by comparison to the US penalties.

"With the restrained response, China hopes Trump can realise his errors and mend his ways," said Xu Hongcai, deputy chief economist at the China Centre for International Economic Exchanges, a Beijing think-tank.

"If we really want to counter, the strongest response would be to target soybean and automobiles. This would hurt the US," said Xu. "China is drawing its bow but not firing. We still have some cards to play."

In retaliation for the US tariffs in steel and aluminium, China is considering levying an additional 15% tariff on US products including dried fruit, wine and steel pipes, and an extra 25% duty on pork products and recycled aluminium.

China had assembled a list of 128 US products in total that could be targeted if the two countries are unable to reach an agreement on trade issues, the ministry said.

The commerce ministry said China would implement the measures in two stages: first the 15% tariff on 120 products including steel pipes and wine worth $977m, and later the higher 25% tariff on $1.99bn of pork and aluminium.

US wine exports to China last year were $79m, according to data from the US Wine Institute, which represents Californian winemakers.

The Chinese list also included close to 80 fruit and nut products. US exports of fruits, frozen juices and nuts to China amounted to $669m last year, and it was the top supplier of apples, cherries, walnuts and almonds.