A worker inside an electronics factory in Qingdao, Shandong province, China. Picture: REUTERS
A worker inside an electronics factory in Qingdao, Shandong province, China. Picture: REUTERS

Washington/Beijing — China condemned the US on Wednesday as the Trump administration pushed ahead with plans to slap tariffs on about $50bn of Chinese industrial and hi-tech products, and vowed imminent countermeasures in the escalating trade dispute.

Hours earlier, the US government unveiled a detailed breakdown of about 1,300 Chinese industrial, transport and medical goods that could be subject to 25% duties, ranging from light-emitting diodes to chemicals and machine parts.

The move, broadly flagged last month, is aimed at forcing Beijing to address what Washington says is deeply entrenched theft of US intellectual property and forced technology transfer from US companies to Chinese competitors — charges Chinese officials deny.

China’s commerce ministry said it "will soon take measures of equal intensity and scale against US goods", and Beijing’s ambassador to the World Trade Organisation (WTO), Zhang Xiangchen, urged members to "join with China in firmly resisting US protectionism".

The ministry did not reveal any specific counter-measures but economists widely view imports of US soybeans, aircraft and machinery as prime targets for retaliation.

The trade showdown between the world’s largest economies has fuelled markets’ fear that they could spiral into a trade war, crushing global growth.

The sense of uncertainty persisted on Wednesday, with MSCI’s broadest index of Asia-Pacific shares outside Japan flickering between positive and negative territory, though Chinese shares rose on hopes that final measures will be watered down after negotiations.

The tariff list from the office of US Trade Representative (USTR) Robert Lighthizer followed China’s imposition of tariffs on $3bn worth of US fruits, nuts, pork and wine to protest against new US steel and aluminium tariffs imposed last month by President Donald Trump. Publication of the list starts a public comment and consultation period that is expected to last about two months.

Many consumer electronics products such as cellphones made by Apple and laptops made by Dell were excluded, as were footwear and clothing, drawing a sigh of relief from retailers who had feared higher costs for American consumers.

A US industry source said the list was somewhat unexpected in that it largely exempted major consumer-grade technology products, one of China’s major export categories to the US.

The source said the "tech industry will feel like overall it dodged a bullet", but traditional industrial goods manufacturers, along with pharmaceuticals and medical device firms, could suffer.

Many US business groups support Trump’s efforts to stop the theft of US intellectual property, but have questioned whether tariffs are the right approach.

They warn that disruption to supply chains that rely on Chinese components will ultimately raise costs for consumers.

"Tariffs are one proposed response, but they are likely to create new challenges in the form of significant added costs for manufacturers and American consumers," National Association of Manufacturers president Jay Timmons said.

Algorithm

The office of the USTR developed the tariff targets using a computer algorithm designed to choose products that would inflict maximum pain on Chinese exporters, but limit the damage to US consumers.

A USTR official said the list underwent an initial scrub by removing products identified as likely to cause disruptions to the US economy and those that needed to be excluded for legal reasons.

"The remaining products were ranked according to the likely impact on US consumers, based on available trade data involving alternative country sources for each product," the official, who spoke on condition of anonymity, told Reuters.

The office of the USTR said the tariff list targeted products that benefited from China’s industrial policies, including the "Made in China 2025" programme, which aims to replace advanced technology imports with domestic products in strategic industries, such as advanced information technology, robotics and pharmaceuticals.

Such policies coerce American companies into transferring their technology and intellectual property to Chinese enterprises and "bolster China’s stated intention of seizing economic leadership in advanced technology as set forth in its industrial plans", the USTR said.

Many products in those segments appear on the list, including antibiotics and industrial robots and aircraft parts. The USTR did include some key consumer products from China, including flat-panel TV sets and motor vehicles, both electric and gasoline-powered with engines of three litres or less.

A Reuters analysis that compared listed products with 2017 Census Bureau import data showed $3.9bn in flat-panel TV imports, and $1.4bn in vehicle imports from China.

Among vehicles likely to be hit with tariffs is General Motors’ Buick Envision SUV, which is assembled in China and sold in the US. Volvo, owned by China’s Geely Motors, also exports Chinese-built vehicles to the US.

More than 200 products on the list were not imported into the US at all last year, including large aircraft and communication satellites, while some categories were highly unlikely ever to be imported, such as China-made "mortars" and "grenade launchers".

The USTR has scheduled a May 15 public hearing on the tariffs, which were announced as the result of an investigation under Section 301 of the 1974 US Trade Act.

China ran a $375bn goods trade surplus with the US in 2017, a figure that Trump has demanded be cut by $100bn. In a break from its usual rhetoric, the Chinese commerce ministry’s statement did not call for talks to resolve trade differences.

China's retaliation

China has said it will levy an additional 25% tariff on imports of 106 US products including soybeans, automobiles, chemicals and aircraft, in response to proposed American duties on its high-tech goods.

Matching the scale of proposed US tariffs announced the previous day, the ministry of commerce in Beijing said the charges will apply to about $50bn of US imports. Officials signaled that the implementation of the proposed measures will depend on when the US applies its own after a period of public consultation.

The step ratchets up tension in a brewing trade war between the world’s two largest trading nations, with the Trump administration’s latest offensive based on alleged infringements of intellectual property in China. In targeting high-tech sectors that Beijing is openly trying to promote, the US has provoked furious rhetoric from Beijing and stronger threats of retaliation than many had anticipated.

“China’s response was tougher than the market was expecting — investors didn’t foresee the country levying additional tariffs on sensitive and important products such as soybeans and airplanes,” said Gao Qi, Singapore-based strategist at Scotiabank. “Investors believe a trade war will hurt both countries and their economies eventually.”

Asian stocks fell, with the MSCI Asia Pacific Index declining 0.4% to the lowest in more than seven weeks. The yen advanced.

Beijing’s proposed targets strike at the core of commercial relations between the two countries, and at some of the most politically sensitive goods in core Trump constituencies. For example, China is the world’s largest soybean importer and biggest buyer of US soybeans in trade worth about $14bn last year.

The US list of planned charges on more than 1,300 product categories focused on China’s industrial machinery and technology exports. China’s envoy to the WTO, Zhang Xiangchen, called it “an intentional and gross violation of the WTO’s fundamental principles of non-discrimination and bound tariffs.”

Industries including aerospace, IT, robotics and machinery were among those targeted by the USTR on Tuesday. It said it chose products to minimise the impact on the US economy and consumers.

In addition to advanced technologies such as communication satellites, the US list includes things ranging from various types of steel to TV components, medical devices, dishwashers, snow blowers and even flame throwers.

The release of the list by USTR's Lighthizer leads into a roughly 60-day period when the public can provide feedback and the government holds hearings on the tariffs. The 25% tariffs come on top of any existing levies.

China’s Made in China 2025 plan was announced in 2015, and highlighted 10 sectors for support on the way to China becoming an advanced manufacturing power, from IT, to robotics and aerospace. In addition, China has a separate development strategy for artificial intelligence (AI), published in 2017.

The USTR said the public can submit written comments on the tariffs until May 11, and it will hold a public hearing on them on May 15 in Washington.

“The US has this vicious intention to strangle China’s high-tech innovation,” said Wei Jianguo, former vice-commerce minister and now an executive deputy director of the China Centre for International Economic Exchanges, a government-linked think tank. “China won’t submit to the US bully. Our counter-measures will hit their soft spots.”

Reuters, Bloomberg

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