Escalating U.S.-China trade dispute heightens global concerns

Joe McDonald and Paul Wiseman, The Associated Press</span>
Published Wednesday, April 4, 2018 5:46AM EDT
Last Updated Wednesday, April 4, 2018 12:03PM EDT

WASHINGTON -- An escalating trade dispute between the world's two biggest economies heightened fears Wednesday of a global trade war, sent global stock markets tumbling but also left the door open to a negotiated settlement that might prevent any serious damage before it begins.

The Dow Jones industrial average tumbled after markets fell in Europe and Asia on worries of an intensifying trade conflict between the United States and China.

After the United States unveiled plans to impose tariffs on $50 billion in Chinese imports Tuesday, China lashed back within hours, matching the American tariffs with plans to tax $50 billion of U.S. products, including soybeans and small aircraft.

The tariffs wouldn't kick in right away. The U.S. government is inviting public comment on its trade sanctions through May 11 and will hold a hearing on the plan May 15. And China set no date for its 25 per cent duties to take effect, saying it is waiting to see what President Donald Trump does.

U.S. Commerce Secretary Wilbur Ross brushed off concern about a trade war. In an interview with CNBC on Wednesday morning, Ross said the tariffs announced by China amount to a mere 0.3 per cent of America's gross domestic product. He added that some U.S. punitive action against Beijing has been "coming for a while" over what the United States calls China's predatory behaviour involving technology.

"What we're talking about on both sides is a fraction of 1 per cent of both economies," Ross said.

The larger concern, the commerce secretary said, is the protection of U.S. intellectual property.

Asked whether the U.S. tariffs against China were a negotiating ploy, Lawrence Kudlow, Trump's top economic adviser, said: "Potentially. It's part of the process. I would take the president seriously on this tariff issue. There are carrots and sticks in life... Both sides benefit by positive solutions that lower barriers."

Beijing's list of 106 products included the biggest U.S. exports to China, reflecting its intense sensitivity to the dispute over American complaints that it pressures foreign companies to hand over technology.

The clash reflects the tension between Trump's promises to narrow a U.S. trade deficit with China that stood at $375.2 billion in goods last year and the ruling Communist Party's development ambitions. Regulators use access to China's vast market as leverage to press foreign automakers and other companies to help create or improve industries and technology.

In a tweet Wednesday after China's announcement, Trump said: "We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S."

A list the U.S. issued Tuesday of products subject to tariff hikes included aerospace, telecoms and machinery, striking at high-tech industries seen by China's leaders as the key to its economic future.

China said it would immediately challenge the U.S. move in the World Trade Organization. A deputy finance minister, Zhu Guangyao, appealed to Washington to "work in a constructive manner" and avoid hurting both countries but warned against expecting Beijing to back down.

Companies and economists have expressed concern that global economic activity might sputter if other governments are prompted to raise their own import barriers.

China announced tariffs worth $50 billion on a series of U.S. products including soybeans, whiskey and cars. Chinese officials said they were obliged to act after the U.S. announced plans for tariffs in an escalating dispute over China's technology program and other trade issues.

"U.S. companies at this point would like to see robust communication between the US government and the Chinese government and serious negotiation on both sides, hopefully to avoid a trade war," said the chairman of the American Chamber of Commerce in China, William Zarit. "I can only hope that we solve our differences as soon as possible to avoid damage to the U.S. economy, Chinese economy and to U.S. companies."

American companies have long chafed under Chinese regulations that require them to operate through local partners and share technology with potential competitors in exchange for market access. Business groups say companies feel unwelcome in China's state-dominated economy and are being squeezed out of promising industries.

Chinese policies "coerce American companies into transferring their technology" to Chinese enterprises, said a statement by the U.S. Trade Representative.

Foreign companies are increasingly alarmed by initiatives such as Beijing's long-range industry development plan, dubbed "Made in China 2025." It calls for creating global leaders in electric cars, robots and other fields. Companies complain that might block access to those industries.

Wang, the commerce official, defended "Made in China 2025." He said it was "transparent, open and non-discriminatory" and foreign companies could participate. Wang said the plan, which sets targets for domestic brands' share of some markets, should be seen as a guide rather than mandatory.

A report released Tuesday by the U.S. Trade Representative also cited complaints that Beijing uses cyber spying to steal foreign business secrets.

The Chinese list Wednesday included soybeans, the biggest U.S. export to China, and aircraft up to 45 tons in weight. That excludes high-end Boeing Co. jetliners such as the 747 and 777, leaving Beijing high-profile targets for possible future conflicts.

Also on the list were American beef, whisky, passenger vehicles and industrial chemicals.

Zhu, the deputy finance minister, expressed thanks to American soybean farmers who he said had lobbied the Trump administration to "safeguard hard-won economic relations between the United States and China."

To minimize the cost to China, regulators picked products for which replacements are available, such as soybeans from Australia or Brazil, said Tu Xinquan, director of WTO studies at the University of International Business and Economics in Beijing.

The Global Times newspaper, published by the ruling party and known for its nationalistic tone, suggested that further retaliatory action might target service industries in which the United States runs a trade surplus. Regulators have wide discretion to withhold licenses or take other action to disrupt logistics and other service businesses.

In a separate dispute, Beijing raised tariffs Monday on a $3 billion list of U.S. goods including pork, apples and steel pipe in response to increased duties on imports of steel and aluminum that took effect March 23.

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McDonald reported from Beijing.

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AP Writers Zeke Miller, Gillian Wong and Christopher Bodeen and AP researchers Shanshan Wang and Yu Bing contributed.

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