Trade War Returns: China Vows Retaliation To US “Blackmail” If Trump Hikes Tariffs

It took less than a day for the latest trade war ceasefire with China to crash and burn.

Just hours after reports spread that Trump is considering more than doubling planned tariffs on $200 billion in Chinese imports, raising the rate from 10% to 25%, China vowed it would retaliate, and warned the U.S. against “blackmailing and pressuring” it over trade.

As reported last night, the latest US proposal – which Trump could unveil as soon as today – would increase the potential tariff rate from 10% the administration had initially put forward on July 10 for that wave of duties in a bid to pressure Beijing into making trade concessions, to 25%. At the same time, representatives of Steven Mnuchin and Chinese Vice Premier Liu He are reportedly having private conversations as they look for ways to reengage in negotiations, however as the WSJ also reported on Tuesday, these negotiations haven’t had much, if any, success. As Bloomberg notes, “while American and Chinese officials have hinted at the possibility of restarting talks in recent weeks, it’s been almost two months since they last held high-level negotiations.”

The two sides held three rounds of formal talks, beginning with a delegation to Beijing led by Mnuchin in May. After Liu visited Washington later that month, the nations released a joint statement pledging to reduce the U.S. trade deficit with China, among other things. But within days, Trump himself backed away from the deal, saying talks would “probably have to use a different structure.”

In response to the latest escalation out of the White House, China again accused the United States of bullying, and vowed to retaliate if Trump proceeds with the measures, warning that pressure tactics would fail.

U.S. pressure and blackmail won’t have an effect. If the United States takes further escalatory steps, China will inevitably take countermeasures and we will resolutely protect our legitimate rights,” Chinese Foreign Ministry spokesman Geng Shuang told a regular news briefing.

Repeating the same futile line that has been used before on numerous occasions, when asked about communication between the two countries on the dispute, Geng said China had “always upheld using dialogue and consultations to handle trade frictions”, but that dialogue must be based on mutual respect and equality.

“Unilateral threats and pressure will only produce the opposite of the desired result,” Geng said.

Trump had said he would implement the $200 billion round as punishment for China’s retaliation against the initial tariffs aimed at forcing change in China’s joint venture, technology transfer and other trade-related policies. The president has also threatened a further round of tariffs on $300 billion of Chinese goods; we expect him to renew these threats on twitter in the coming hours.

The public comment period on the U.S. tariffs aimed at $200 billion ends Aug. 30 after public hearings Aug. 20-23, according to the U.S. Trade Representative’s office. It typically has taken several weeks after the close of public comments for the tariffs to be activated and will send a signal that the Trump administration is upping the pressure on China to make serious concessions.

Quoted by Reuters, Erin Ennis, senior vice president of the U.S.-China Business Council, said a 10 percent tariff on these products is already problematic, but more than doubling that to 25 percent would be much worse.

“Given the scope of the products covered, about half of all imports from China are facing tariffs, including consumer goods,” Ennis said. “The cost increases will be passed on to customers, so it will affect most Americans’ pocketbooks.”

Meanwhile, Bloomberg notes that in a sign the trade standoff is escalating withint Chinese politics, the Politburo signaled on Tuesday that policy makers will focus more on supporting economic growth, after the latest Chinese manufacturing surveys showed trade tensions have led to a modest slowdown in China’s growth rate.

The communique, which followed a meeting of the country’s most senior leaders led by President Xi Jinping, said the campaign to reduce leverage will continue at a measured pace while improving economic policies to make them more forward-looking, flexible and effective in the second half.

Chinese equities and the yuan extended losses Wednesday afternoon, with the Shanghai Composite closing down -1.8% at the lows of the session, as concern over possible higher U.S. tariffs overwhelmed optimism about Beijing’s pledge to support economic growth.

The yuan fell against a trade-weighted basket of currencies to a level that’s near the lowest on record, confirming that Beijing is indeed allowing further weakness. Meanwhile, the offshore Yuan tumbled to the lowest level in the past year before local banks intervened to sell dollars – the PBOC’s preferred method of direct market intervention – and prevent a resurgence in capital outflows.

In advance of the Aug. 30 public comment period deadline, the next wave of U.S. tariffs is set to kick in as soon as today with the possible imposition of duties on another $16 billion of Chinese imports. The implementation could be delayed for weeks as the administration works out the details of which products it will target. Officials in Beijing have vowed to respond with the same amount of tariffs on U.S. products.

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