China’s responses to U.S. tariffs have failed, so far, to thwart President Donald Trump’s trade offensive, and with the White House amping up the fight again, Chinese leaders are not sure how to respond,
BEIJING — President Donald Trump imposed tariffs in July on $34 billion in Chinese goods. China matched them dollar for dollar with its own.
Then he hit an additional $16 billion in goods in August. China matched that, too.
Now, Trump has made his biggest move yet, announcing 10 percent tariffs starting in a week on $200 billion a year of Chinese goods. But this time, China cannot match them all — and that crystallizes a growing problem for Beijing.
On Tuesday, Chinese officials responded to the president’s latest move by following through on an earlier threat to impose tariffs on $60 billion in American goods — nearly everything China buys from the United States.
Most Read Business Stories
- Canada's answer to Tesla is a $15,500 electric three-wheeler
- Property taxes dropping in half of King County cities after years of big increases
- REI CEO Jerry Stritzke resigns, saying he failed to disclose a 'personal' relationship
- California utility PG&E shares rise as regulator calms investors VIEW
- PG&E linked to fatal wildfires; its stock nose-dives
China’s responses, so far, have failed to thwart Trump’s trade offensive, and with the White House amping up the fight again, Chinese leaders are not sure how to respond, people briefed on economic policymaking discussions say.
Chinese officials “are generally confused,” said Ral Hinojosa-Ojeda, a trade specialist at the University of California, Los Angeles, who has been traveling around China speaking with officials, businesspeople and workers.
“They don’t know what to do,” he added. “They worry that the tit-for-tat model is playing into Trump’s hands.”
China does not import nearly enough from the United States to target $200 billion in American goods — let alone the additional $267 billion in Chinese goods that Trump has threatened to tax.
But China’s leaders feel they cannot back down. They have presented the trade war as part of a broader effort by the United States to contain China’s rise.
Trump has said as much and did so again at a news conference Tuesday. “China has been taking advantage of the United States for a long time, and that’s not happening anymore,” he said.
The Chinese public could see any effort to soothe tensions as capitulation. Some hard-liners want a more aggressive stance.
Lou Jiwei, who retired as finance minister in 2016 but is still the head of the country’s social-security fund, suggested Sunday that China could deliberately disrupt American companies’ supply chains by halting the export of crucial components mostly made in China. But Chinese trade experts dismiss that idea as impractical and not the government’s position.
Chinese officials know what they do not want to do. They have rejected one idea that would replace the matching tariffs with a more sophisticated system, said the people briefed on the discussions, who spoke on the condition of anonymity because of the fragility of the deliberations. That response — discussed in detail within the Commerce Ministry and other agencies — would have led to lower tariffs on American goods in dollar terms, which could be seen as a fig leaf to the White House.
That approach would have recognized a potentially expensive new reality for Beijing: The tariffs may be here to stay. Trump is suffering from weak approval ratings and could lose influence in congressional elections in November. Democrats have opposed most of his agenda, but many have supported his attacks on trade with China. Even if Trump leaves office in two years, there is little guarantee that his China trade policies will be changed.
In Beijing, proponents of the new approach, which would scale down China’s tariffs in dollar terms to reflect the lopsided trade imbalance between the two countries, say Chinese leaders could still revisit the idea because it offers them a way to contain the damage and soothe tensions.
China’s leaders “don’t really want to engage in a dollar-for-dollar retaliation,” said Yu Yongding, a prominent economist at the Chinese Academy of Social Sciences. “Their purpose is to stop this trade war.”
China’s other options are limited.
It could punish American businesses that depend on China. Already, its antitrust officials have effectively killed the $44 billion effort by Qualcomm, the semiconductor company, to buy a Dutch chipmaker. China also has pledged to buy soybeans from other countries, but replacing voluminous American supplies will be difficult.
Other moves already have served as warnings, like delays at Chinese ports. Ford Motor’s Lincoln cars and other goods have sometimes been the subject of unusually lengthy customs inspections this summer, although the delays do not appear to have caused much financial harm.
“It is certain that China will have other, invisible retaliation against the United States,” said Mei Xinyu, a researcher at the Commerce Ministry’s policy research and training academy.
But more drastic moves, like closing factories or encouraging consumer boycotts of U.S. goods, could eliminate Chinese jobs. They also could permanently damage China’s reputation as a place to do business and only accelerate corporate plans to look to other countries.
“It’s difficult to build a reputation and easy to harm a reputation,” Mei said.
China also could guide its currency to a weaker level against the dollar. It already has nudged the currency a bit lower, making Chinese goods cheaper in the United States and partly offsetting the tariffs. But a weaker currency would make China’s imports more expensive, raise the risk of inflation and lead to a potentially damaging flight of money out of the country. It also could provoke further U.S. retaliation.
The trade war has hit only a small part of the Chinese economy for now, but the damage could add up. Higher tariffs on U.S. goods raise the cost of essential imports like soybeans and microchips. China still derives a big chunk of growth from making smartphones, clothing, chemicals and a raft of other goods and selling them to Americans.
Already its currency and stock market have weakened as the trade war has intensified. China has taken steps to shore up its economy, but they could take months or years to kick in.