President Donald Trump signaled he may
escalate the trade war with China in the coming hours after the country’s
latest round of tariffs, firing off a new demand that U.S. companies seek
alternatives to producing goods in China.
“I will be responding to China’s
Tariffs this afternoon. This is a GREAT opportunity for the United States,”
Trump tweeted Friday, after China threatened to impose additional tariffs on
$75 billion in American goods, including soybeans, cars and oil.
A meeting on trade took place around
midday in the Oval Office, according to people familiar with the discussions.
Trump is scheduled to leave late Friday for the G-7 summit in France, where
trade tensions and their impact on the global economy are at the top of the
agenda.
Trump added in a flurry of tweets that
he “hereby ordered” American companies to start looking for alternatives to
making products in China. It wasn’t immediately clear what legal authority the
president would have to force such corporate decisions.
The president laced into China, saying
“We don’t need China” and that the U.S. would be “better off without them.” He
also took aim at the Federal Reserve over what he’s called its failure to lower
interest rates to boost the economy and keep the dollar from becoming too
strong, which weighs on exports.
U.S. stocks fell after Trump’s
remarks, with the S&P 500 Index dropping 2.6% on the day. Technology stocks
were hardest-hit. Treasuries rallied.
....better off without them. The vast
amounts of money made and stolen by China from the United States, year after
year, for decades, will and must STOP. Our great American companies are hereby
ordered to immediately start looking for an alternative to China, including
bringing..
The angry set of tweets from Trump
came after China announced its retaliation for new U.S. tariffs due to take
effect Sept. 1 and Federal Reserve Chairman Jerome Powell repeated his concern
that U.S. trade policy was contributing to a slowdown in both U.S. and global
economies. They also reflected Trump’s growing frustration with the lack of
progress in his trade battles with China, according to analysts close to the
White House.
“The president has been
increasingly frustrated in the last three months’’ with China after the May
breakdown of talks that he believed were about to yield a deal, said Michael
Pillsbury, a China expert with the Hudson Institute in Washington with whom
Trump has consulted in the past.
Trump’s most likely response,
Pillsbury said, would be to raise tariffs from 10% to 25% on remaining imports
from China that are due to start taking effect Sept 1. But he had other ways to
increase pressure, Pillsbury added, including giving the final green light to
sales of F-16s to Taiwan that have been signed off on by the State Department.
The administration has notified Congress it intends to go ahead with the sale.
Derek Scissors, a China expert at the
American Enterprise Institute who has also advised the administration, agreed
that an increase in tariffs was the most likely course of action, though it
could be staged to give China more time to respond.
Trump’s order to U.S. companies to
abandon China would mean very little in the short-term, Scissors said. But the
president does have other ways he could increase pressure on U.S. companies to
stop doing business with China, particularly if he chose to invoke a national
security emergency and ban tech companies from selling certain products to
Chinese buyers. “It’s worth the market being a
little nervous that U.S. tech companies are involved with China and that they
are providing China with dual-use technologies,’’ Scissors said. “That’s what
the hawks are angry about. So the president can take action against those companies
not by ‘I hereby order,’ but by starting a process where the direct pressure on
them goes up.’’
China’s newest tariffs came earlier
Friday in retaliation for Trump’s latest planned levies on Chinese imports,
which have pushed U.S. stocks and commodities lower. The move takes aim at the
heart of Trump’s political support -- factories and farms across the Midwest
and South at a time when the U.S. economy is showing signs of slowing.
Trump reiterated his criticism of the
Fed after Powell’s remarks were released earlier Friday morning: “My only
question is, who is our bigger enemy, Jay Powell or Chairman Xi?” Trump said in
one of his tweets, referring to Chinese President Xi Jinping.
The news from Beijing rekindled
concerns about the world’s two largest economies and a global growth outlook
that’s already looking shaky.
Some of the Chinese countermeasures
will take effect starting Sept. 1, while the rest will come into effect from
Dec. 15, according to the announcement from China’s Finance Ministry. This mirrors
the timetable the U.S. has laid out for 10% tariffs on almost $300 billion of
Chinese shipments.
China will put an extra 5% tariff on
American soybeans and crude-oil imports starting next month. The resumption of
a suspended extra 25% duty on U.S. cars will resume Dec. 15, with an additional
10% on top for some vehicles. With existing general duties on autos taken into
account, the total tariff charged on U.S.-made cars would be as high as 50%.
The U.S. Chamber of Commerce called
China’s move “unfortunate but not unexpected.”
“The fact of the matter is that nobody
wins a trade war, and the continued tit-for-tat escalation
between the U.S. and China is putting significant strain on the U.S. economy, raising costs, undermining investment, and roiling markets,” Myron Brilliant, the chamber’s head of international affairs, said in a statement.
After Trump gave the go-ahead earlier
this month for tariffs on the almost $300 billion in Chinese imports that
haven’t been hit by higher duties, China halted purchases of agricultural goods
and allowed the yuan to weaken.
Possible
Actions
Other than possibly raising the
tariffs set to kick in Sept. 1, it isn’t clear what action Trump might take.
Inside the White House, hawks have been pushing for a direct intervention in
currency markets by the Treasury by pointing to a slowdown in U.S.
manufacturing, which many economists have blamed on tariffs imposed by Trump
and uncertainty surrounding his trade war with China.
Just how effective a Fed cut or an
intervention would be is unclear. The relevant Treasury fund has $92 billion in
it. Even if the Fed were to join in, as it has in past interventions, and match
that amount, a $180 billion injection into a $5 trillion per day global
foreign-exchange market might have a limited effect. It might also unnerve
markets and have longer-term economic consequences.
Beyond that, the administration could
raise further barriers to Chinese investment in the U.S. or target China’s
energy supply by revoking waivers that allow Beijing to continue purchasing oil
from Iran and Venezuela. Trump could also take steps to further isolate Huawei
Technologies Co., which the U.S. deems a security threat, in its bid to supply 5G
technology in the U.S. Or, Trump could take a harder line against Beijing over
human rights and the autonomy of Hong Kong, where protests have raged for
weeks.
Fentanyl
Order
U.S. and Chinese negotiators have
spoken by phone and are planning another call in coming days. People familiar
with their intentions previously said that the Chinese delegation is sticking
to their plan to travel to the U.S. in September for face-to-face meetings,
which may offer a chance for further reprieve.
Trump also ordered mail carriers to
search for deliveries of the drug fentanyl coming from China.
“Also, I am ordering all carriers, including Fed Ex, Amazon, UPS and the Post Office, to SEARCH FOR & REFUSE” deliveries of the illegal drug. It isn’t clear what the carriers’ responsibilities are in halting those shipments, which have helped fuel an opioid epidemic in the U.S.
Stopping shipments of illegal fentanyl
that enter the U.S. is a job that typically falls to government agencies such
as the Drug Enforcement Administration, Food and Drug Administration and
Customs and Border Protection.
Illegal Chinese fentanyl is
increasingly entering the U.S. through the Mexico border via drug traffickers
instead of being sent directly. It’s unclear if Trump also wants to stop legal
fentanyl, often used by cancer patients to treat pain, from entering the U.S.
as well, which would cause an outcry from patients.
— With assistance by Saleha
Mohsin, and Justin Sink
Source: Bloomberg