China ‘will fight to the end’ in trade war, Beijing warns after Donald Trump hits country with $60b in tariffs

The sanctions follow a US investigation into regulations that force American companies operating in China to transfer technology to local business partners

PUBLISHED : Friday, 23 March, 2018, 12:18am
UPDATED : Friday, 23 March, 2018, 3:02pm

China denounced US President Donald Trump’s plan to levy import tariffs amounting to about US$60 billion on products from China as part of Washington’s effort to fight Beijing’s government support for domestic tech players and long-standing imbalances in the bilateral trade and investment relationship.

“We urge the US to cease and desist” from Trump’s plan to punish China for restrictions on foreign companies operating in the county, Beijing’s embassy in Washington said in a statement. “If a trade war were initiated by the US, China would fight to the end to defend its own legitimate interests with all necessary measures.”

The embassy’s statement came hours after Trump lambasted China for its industrial policy and said he demanded immediate action from Beijing to address a growing deficit, which rattled the markets.

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In remarks at the White House before signing his executive order on tariffs, Trump said he had asked President Xi Jinping for an “immediate” US$100 billion reduction in China’s trade surplus with the US as part of efforts to address these issues. 

“We have a tremendous intellectual property theft situation going on” in China, Trump said. “We want reciprocal. If they charge us, we charge them the same thing,” he said. “I really believe they cannot believe they’ve gotten away with this for so long.”

Trump said the proposed tariff action would be worth US$60 billion, higher than a US$50 billion estimate from the administration official briefing reporters earlier.

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The tariffs would be levied on products in key areas identified by Beijing’s “Made in China 2025” initiative, including “next-generation information technology”, electronics, robotics, aviation and aerospace products, White House trade adviser Peter Navarro told reporters on a conference call.

US Trade Representative Robert Lighthizer will seek input from other government agencies on a list of about 1,300 varieties of products from China for final approval and the punitive tariffs would go into effect after a notice and comment period, said a senior administration official on the call. 

China “told the whole world that it’s going to dominate technology and intellectual property as a way of making China prosperous and doing it through a variety of industrial policies, many of which are anathema to a free market global trading system”, Navarro said. 

“China benefits far more from the US-China trade relationship than the US does. Since 2001, when China joined the World Trade Organisation, its economy has grown from $1 trillion of GDP to $8 trillion. In the same time, the American economy has sputtered.”

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The proposed sanctions against China follow an investigation launched under section 301 of the US Trade Act of 1974 into Chinese regulations that force US companies operating in the country to transfer technology and intellectual property rights to local business partners. 

The amount of tariffs sought is roughly equivalent to the revenue US companies in China lose each year as a result of forced technology transfers to local partners, according to the administration official. He said the levies will get a 15-day public review period, during which US companies can weigh in, before going into effect.

Part of Trump’s order also directs Lighthizer to pursue a World Trade Organisation case “to address China’s discriminatory licensing practices”. 

It also instructs Treasury Secretary Steven Mnuchin to formulate within 60 days possible executive action aimed at restricting investments by Chinese companies in the US to curb Beijing’s ability to acquire US technologies that might give China a military advantage.

USTR’s move threatens to spark a disruption in the world’s largest economic relationship, pegged at about US$650 billion in goods and services trade in 2016 and amounting to more than US$250 billion in direct investments over the past 10 years. 

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The tech-heavy NASDAQ Composite Index and the NYSE Composite Index both closed nearly 2.5 per cent lower in response to the possible consequences of an escalating trade war.

"Once a round of such tariffs and counter-measures are started, it can become very unclear when such tit-for-tat actions will stop," said Nelson Dong, senior partner at law firm Dorsey & Whitney law firm and a member of the board of the New York-based National Committee on US-China Relations. 

"And then global commerce can suffer greatly, leading to more net job losses and more lost national revenues from exports than can be helped in the ostensibly ‘protected’ industries,” Dong said. 

“That is the essence of the fear of a wide-spread ‘trade war’ due to such tariffs."

Analysts expect China to react with specific measures. 

A renminbi currency devaluation ”is one of many means” China could use to counter punitive tariffs levied by Washington, Wang Wen, executive dean at Renmin University of China’s Chongyang Institute for Financial Studies, told reporters in New York a day before Trump announced his tariff plan, when asked how Beijing would respond. 

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Speaking at a China General Chamber of Commerce USA event in New York, Wang said he has served as a consultant to senior Chinese leadership, including Xi Jinping. 

“The US has to know that China is not Iraq; China is not Russia; China is not Iran,” Wang said. “China is full of measures to respond to US activities. The US shouldn’t consider China to be a paper tiger. The US, through its actions, cannot interfere with China’s domestic policy. Any reforms we undertake will be done at our own pace.”

Trump, who won the 2016 presidential election partly on pledges to reduce the trade deficit the US has with China, is under pressure to follow through with tough measures against Beijing. That deficit rose throughout his first year in office to a record US$276 billion (HK$2.16 trillion) in 2017. 

The US leader has recently drawn closer to Navarro, who has blamed unfair trade practices pursued by China for a hollowing out of US metal production capacity and the loss of millions of industrial jobs in the country.

Meanwhile, Trump’s White House economic adviser, who counselled against tariff action, resigned this month. 

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USTR has spent months building its case against China. 

Lighthizer began taking testimony from US industry representatives and other experts soon after he started his investigation in August, seeking verification that the Chinese government uses unfair tactics on US companies’ operations in China “to require or pressure the transfer of technologies and intellectual property to Chinese companies”, according to USTR documents. 

Individuals giving testimony at one hearing before the US International Trade Commission included Owen Herrnstadt, chief of staff to the international president of the International Association of Machinists and Aerospace Workers and Scott Kennedy, director of the Project on Chinese Business and Political Economy at the Centre for Strategic and International Studies, a Washington-based think tank.

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China’s State Council announced its “Made in China 2025” plan in May 2015, identifying 10 priority sectors including robotics, Internet of Things, aviation and biomedicine. 

The Washington-based US Chamber of Commerce has criticised the plan by highlighting how 2.2 trillion yuan (US$318 billion) worth of state-directed capital and a raft of national security regulations associated with the programme are benefitting Chinese companies such as smartphone maker Xiaomi Corp.

The Semiconductor Industry Association, whose charter members include Intel, IBM and Qualcomm, offered support for Trump’s move, but urged caution. 

“The US semiconductor industry shares the Trump administration’s concerns regarding unfair and discriminatory trade practices that put at risk American intellectual property in China,” the association’s president, John Neuffer, said in a statement. 

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“We are reviewing the administration’s Section 301 findings and proposed actions, and encourage an outcome that protects US intellectual property in a manner that avoids a costly trade conflict,” Neuffer said. 

“We welcome the opportunity to provide input on proposed tariffs, and hope to work with the administration to avoid tariffs that would harm competitive US industries and their consumers.” 

Others in the US criticised Trump for making unilateral moves.

“Concerns around [intellectual property rights protection and forced technology transfers] have been heightened by the China 2025 plan, where China explicitly lays out a plan to achieve global dominance in a series of advanced technology sectors,” Wendy Cutler, the managing director of the Asia Society Policy Institute’s Washington office, stated after Trump signed the tariff order. 

“The core question is, what is the most effective way to address these valid concerns without hurting the US consumers, companies and their workers,” Cutler’s statement said. 

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“Imposing tariffs is not the way to go,” said Cutler, who served as acting deputy US trade representative under former President Barack Obama. 

“Such unilateral action is inconsistent with WTO rules and invites counter-retaliation. Tariffs will hurt US consumers, workers and companies.”

 Additional reporting by Jodi Xu Klein