White House moving forward on tariffs of Chinese goods, raising specter of trade war

Reporting from Washington —  President Trump is moving toward a major confrontation with China over its trade practices, as administration officials put the final touches on billions of dollars of tariffs aimed at Chinese exports and possible restrictions on investments in the U.S.

An announcement by Trump is “imminent,” the administration’s chief trade negotiator, U.S. Trade Representative Robert Lighthizer, told members of the House Ways and Means Committee Wednesday.

Trump is expected to impose roughly $30 billion in tariffs on Chinese exports to the U.S., according to a U.S. official familiar with the internal discussions who did not want to be quoted before the formal announcement.

The taxes on imports and other steps Trump plans to take are aimed at ending China’s long practice of pressuring U.S. firms to turn over technology and production secrets, and in some cases stealing them using cyber-theft and other forms of industrial espionage.

The moves likely would raise the prices of a wide variety of Chinese goods, such as computers and other electronics.

The goal would be to hit products with a maximum impact on China and the least possible effect on U.S. consumers, Lighthizer said. But he warned that China could retaliate against U.S. exports. And outside analysts have warned the moves could generate a damaging trade war.

Even if that happens, China’s “absolute theft of intellectual property” has cost the U.S. “millions” of jobs, Lighthizer said.

“Nobody wins from a trade war,” he added. “On the other hand … if you’re on a course that’s unsustainable, you have to change.” The U.S. currently runs a $357-billion trade deficit with China, he noted.

Chinese officials made clear that retaliation was likely

“China does not want to fight a trade war with anyone. But if anyone forces us to fight one, we will neither be scared nor hide,” Hua Chunying, a Foreign Ministry spokeswoman said.

Trump is also likely to restrict some Chinese investments in the U.S. and could also order restrictions on visas for Chinese travelers and students. Chinese students account for about one-third of the 1.1 million international students enrolled in U.S. universities — and what they pay in tuition counts as billions of dollars of U.S. service exports.

The moves against China come at a time of increasing global trade tensions from the administration’s recent decision to slap sweeping tariffs on steel and aluminum imports.

Those tariffs are scheduled to take effect on Friday, even though the administration has not decided on a long list of requests by countries and specific industries for exemptions.

On Wednesday, Commerce Secretary Wilbur Ross and European Union Trade Minister Cecilia Malmström issued a joint statement pledging to negotiate “as rapidly as possible” on the issue.

Imports from some countries, including Canada and Mexico, will be exempt from the outset, Lighthizer said.

Other countries likely will be added to the exemption list over the next several weeks, he said, specifically mentioning South Korea and Brazil. Canada is the largest exporter of steel to the U.S., Brazil is second, Korea third and Mexico fourth.

In the end, the exemptions could cover the majority of steel imports and an overwhelming share of aluminum imports. That would have the effect of targeting them more tightly on exports from China and countries that buy Chinese steel and ship it on to the U.S.

Both the metal tariffs and the broader tariffs aimed at intellectual property will almost certainly complicate Trump’s goal and strategy of enlisting China’s help in breaking through North Korea’s intransigence on nuclear weapons.

Trump has agreed to an unprecedented summit with North Korean leader Kim Jong Un, expected to take place in May. The administration has intensified economic pressure on Pyongyang — with help from Beijing. But in now taking aim at China with a range of punishing measures, Trump risks Chinese cooperation on North Korea.

Chinese officials could also respond by imposing tariffs on top American exports such as soybeans and airplanes, targeting politically sensitive products in which China has alternative sources. Beijing could also make life even harder for the countless U.S. businesses operating in China’s enticingly huge market.

Analysts worry that such retaliation will be met by counter-measures from Trump, especially with rising anti-China voices in his administration, leading to an escalating conflict between the two biggest economies that would have repercussions across the world.

Investors’ rising uncertainties about trade have hurt stock prices, as well as the dollar, reflecting worries that a wave of protectionism will undercut potential economic gains from tax cuts and otherwise solid U.S. fundamentals.

“It’s really, really good that we have an administration who is finally getting tough with China on their egregious innovation, mercantilist policies like forced tech transfers,” said Robert Atkinson, president of the Information Technology and Innovation Foundation, a nonpartisan think tank.

But even as his group has analyzed Beijing’s intellectual property theft and other unfair economic behavior, Atkinson said he worries that the new tariffs will end up hurting the U.S. in the long run by reducing the amount of imported computers, scientific instruments and other capital goods that help build the productive capabilities of the economy.

Many of those high-tech goods are assembled in China with value-added parts imported from elsewhere, so the pain from the new U.S. tariffs will be spread to other nations, he noted.

“It’s not clear to me that we can win a one-on-one [trade] war with China,” Atkinson said, adding that the U.S. does not have as much leverage as it did a decade ago. Imports from the U.S., while still large, account for a speck of a $12.5 trillion Chinese economy. “I think you have to be more strategic with China. ... We have to bring all our allies together, to pressure them.“

Major economies in Europe and Asia also have struggled with Chinese trade and investment policies, but the Trump administration has been burning bridges with them with his fiery “America first” rhetoric and, more recently, unilateral steps to fulfill his campaign promise to overhaul the trade status quo.

Even erstwhile allies in Asia, such as Japan, have been reluctant to negotiate a bilateral trade deal with hard-line Trump officials, and have instead signed a separate free-trade deal among themselves.

Trump’s new tariffs on Chinese goods came after his trade team launched an investigation of China related to technology transfer, intellectual property and innovation. There never was much doubt that the probe would conclude that China’s policies and behavior have been unwarranted and harmful to American individuals and businesses. That finding, under Section 301 of a 1974 U.S. trade law, gives the president wide authority to take corrective actions.

Although many may disagree with Trump’s specific measures, relatively few outside of China are likely to question the underlying basis for cracking down on Beijing. Analysts do not expect anything like the blowback from Republican lawmakers or American business groups that accompanied the tariffs on steel and aluminum.

Economically and politically, Beijing has undertaken more aggressive and expansionary policies in recent years. Chinese leaders have backpedaled from their 2013 pledge to open markets and instead have pursued their so-called 2025 plan that aims to build national champions in strategic sectors, which many Americans worry will unfairly restrict opportunities.

It hasn’t helped that Chinese President Xi Jinping moved this month to end term limits to allow himself to be president for life — a power play widely interpreted in the West as a repudiation of liberalism.

Trump himself has sent mixed signals on China. He declined to label China a currency manipulator, as he had promised in the campaign, and has frequently spoken of his great personal relationship with Xi.

More recently, however, Trump promoted Peter Navarro, a longtime China hawk, to be a top aide while driving away Gary Cohn, his former top economic advisor who had sought to temper Trump’s protectionist impulses.

The increased skepticism toward Beijing in the U.S. can be seen in a bipartisan effort underway in Congress to toughen scrutiny over Chinese and other foreign investments in the U.S.. Earlier this month Trump, with an eye toward China, cited national security in blocking Singapore-based Broadcom’s proposed buyout of Qualcomm, a San Diego semiconductor and telecommunications firm.

“They want technology; they want those things we don’t believe they should have,” said Michael Wessel, a longtime member of the congressionally created U.S.-China Economic and Security Review Commission, which monitors and reports on the bilateral relationship.

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