China warned Tuesday it will retaliate against President Donald Trump’s latest tariff threat, fueling fears their escalating dispute could harm global trade and economic growth.
The Commerce Ministry criticized Trump’s order to prepare tariffs on $200 billion of Chinese goods as blackmail. In a forcefully worded statement, it said Beijing is ready to “defend the interests of the Chinese people and enterprises.”
“If the U.S. side becomes irrational and issues the list, China will have to adopt comprehensive measures in quantity and quality in order to make strong countermeasures,” said the statement.
It gave no details. But on Saturday, Beijing announced 25- percent tariffs on $34 billion of U.S. imports including soybeans and beef, effective July 6 in response to Trump’s tariff hike on a similar amount of Chinese goods. It also scrapped agreements to narrow China’s trade surplus with the United States by purchasing more American farm goods, natural gas and other products.
Asian stock markets fell following Trump’s announcement. The Shanghai Composite Index was down 3.7 percent at midday while Tokyo’s benchmark was off 1.7 percent.
The pain has been limited so far to sellers of goods targeted by U.S. and Chinese tariffs, but economists say the impact could spread.
The risk of “a more meaningful impact on global trade and growth have increased,” said Morgan Stanley economists in a report.
Until now, China has mirrored Trump’s actions, matching Friday’s tariff hike with identical charges on the same amount of imports. But the lopsided status of U.S.-Chinese trade means Beijing doesn’t import enough American goods to match Trump’s latest threat.
China bought American goods worth $153.9 billion last year, while exports to the United States totaled $429.8 billion, according to customs data. That would leave about $120 billion of imports available for retaliatory tariffs after Saturday’s announcement.
Chinese regulators also have the option of broadening their retaliation by tying up American companies in tax or anti-monopoly investigations or by denying or revoking licenses.
“China could target U.S. firms through tax and regulatory policies,” said Citigroup in a report.
Washington’s dispute with China is part of broader U.S. complaints about global trading conditions that have prompted Trump to raise duties on steel, aluminum, washing machines or solar panels from Canada, Europe, Japan and South Korea.
Economists warn Washington might be undercutting its negotiating position by alienating potential allies.
The U.S. tariff hikes imposed so far affect a total of about $109 billion of imports, according to Morgan Stanley, who said that with retaliatory tariffs imposed by American trading partners added in, the total rises to $181 billion, or 1 percent of global trade.
The process of negotiating a settlement “is now likely to become more protracted,” said Morgan Stanley economists in a report.
The United States and China have the world’s biggest trading relationship, but official ties are increasingly strained over complaints that Beijing’s technology development tactics hurt American companies.
Beijing has offered to narrow its politically volatile trade surplus with the United States but has resisted changing technology development tactics its leaders see as a path to prosperity and to restoring China’s rightful role as a global leader.
Monday’s tariff threat comes on top of $34 billion of Chinese goods subject to an extra 25-percent tariff effective July 6 in response to complaints Beijing steals or pressures companies to hand over technology.
The Trump administration also has threatened a tariff hike on another $100 billion of imports in its parallel dispute over Beijing’s trade surplus, though it has yet to say when that might take effect.
Europe, Japan and other trading partners raise similar complaints, but Trump has been unusually direct about challenging Beijing and threatening to disrupt such a large volume of exports.
“Beijing will not panic in response to Trump’s latest threat, but will be deeply concerned,” said Eurasia Group in a report. “China’s government will step up an already intensive effort to determine whether Trump has the political strength to carry out his threats, while working to maximize pressure on US interests to force him to back down and accept a compromise.”