Trade war looms as Trump announces China tariffs

US President Donald Trump announced on Friday a 25% tariff on $50bn of imports from China, escalating a trade row with the Asian powerhouse just a day after Beijing warned Washington that it was preparing to retaliate. Defending the decision, Trump said the US’s trade relationship with China was “no longer sustainable.”

Beijing responded to the move by saying that it intends to impose similar tariffs on US imports, raising the specter of a full-blown trade war between the two economic giants.

In a statement, the Trump Administration said the tariffs would be levied on goods that “contain industrially significant technologies,” and warned that it would consider further levies if China retaliates.

“My great friendship with President Xi [Jinping] of China and our country’s relationship with China are both very important to me,” said Trump. “Trade between our nations, however, has been very unfair, for a very long time. The United States can no longer tolerate losing our technology and intellectual property through unfair economic practices.”

In response, the Chinese Ministry of Commerce said on its website: “China is unwilling to have a trade war, but the Chinese side has no choice but to strongly oppose this, due to the United States’ myopic behavior that will harm both parties.”

It added that the decision will disrupt the world trade order, ultimately harming both countries’ economic interests.

“We will immediately introduce tariff measures of the same scale and strength. All the results from the negotiations previously reached by the two parties will be invalid,” said the ministry.

Meanwhile, Chinese Foreign Ministry spokesman Geng Shuang told a regular daily news briefing: “If the United States takes unilateral, protectionist measures, harming China’s interests, we will quickly react and take necessary steps to resolutely protect our fair, legitimate rights.”

The International Monetary Fund (IMF) has warned that that the new tariffs pose a serious threat to the global trading system and will ultimately damage the American economy. IMF chief Christine Lagarde said the move could have a “macroeconomic impact” if the US’s other trading partners retaliate.

“It would be serious, not only if the United States took action, but especially if other countries were to retaliate, notably those who would be most affected, such as Canada, Europe, and Germany,” said Lagarde.

Over 800 Chinese products worth $34 billion were included in Trump’s initial list. The remaining products being targeted will be decided later.

Washington has compiled a second list of possible tariffs on another $100 billion worth of Chinese imports, on the assumption that Beijing will retaliate, sources told Reuters. Beijing, meanwhile, has issued its own list of possible tariffs on $50 billion in American goods, including aircraft, soybeans and automobiles.

The US and China have held three rounds of high-level talks since early last month, but have failed to reach a compromise. Beijing has offered to buy an additional $70 billion worth of US farm and energy products and other goods, according to Reuters’ sources, but Trump has remained intransigent.

While China has recently introduced market-opening reforms in some industries, it does not appear inclined to make any concessions on its core industrial policies

Commenting on Trump’s posture, Tai Hui, chief market strategist for Asia-Pacific at JP Morgan Asset Management, wrote in a note: “The threshold to come to a consensus or a compromise seems high.”

Renewed concerns over the escalating trade row resulted in shares in Chinese telecoms gear maker ZTE Corp plunging on Friday. The company has lost 30% of its market value since resuming trade this week.

While China has recently introduced market-opening reforms in some industries, it does not appear inclined to make any concessions on its core industrial policies.

“US-China trade tensions will be long-lasting,” Yifan Hu, regional chief investment officer and chief China economist at UBS Wealth Management, told reporters in Beijing.

She added, “The trade skirmish is not just about the trade deficit and exchange rates, but about the rules of the game, market openness and intellectual property. It is also about values, governance and geopolitical disagreements.”

Trump has also provoked a trade war with the European Union, Mexico and Canada over aluminum and steel, and has threatened to impose tariffs on cars from Europe.