Extent of US-China trade fight depends on Trump's goals

Posted March 24, 2018

On Thursday, the market sold off after Trump announced plans to impose tariffs on about $50 billion of Chinese imports to retaliate for theft of intellectual property.

The move has sparked a global fear of a trade war between the two biggest economies in the world.

The Chinese embassy in Washington said that China "has demonstrated sincerity in making reasonable suggestions to the U.S., and has made great efforts to address the current trade imbalance between China and the United States". That appeared to be the opening salvo of a trade war, as Beijing announced its own retaliatory tariffs on more than 100 items, including US pork and wine.

The EU accused Donald Trump of "holding a gun to its head" yesterday after he failed to rule out a future trade war.

But China was not spared, with the US President pointing to his country's $504bn deficit with the country and confirming that there would be additional sanctions across a wide range of goods and services from software to fake Ralph Lauren polo shirts.

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Trump's actions represent a "seismic shift from an era dating back to Nixon and Kissinger, where we had as a government viewed China in terms of economic engagement", White House trade adviser Peter Navarro told reporters on Thursday.

"Part of the reason, frankly, that we're able to do that is the fact that we have the tariffs on steel and the tariffs on aluminium".

Wall Street's three major indexes tumbled in late afternoon trading on Friday as investors shied away from risky bets going into the weekend while they braced for a potential US trade war with China.

The measures included a significant change in Trump's looming steel and aluminium tariffs that would aim them primarily at China, the Washington Post reported.

Along with pork and aluminum, China's Ministry of Commerce said it could impose import tariffs on US goods including fruit, nuts, wine and steel pipes. China announced a more modest package of potential tariffs of its own and vowed to "fight to the end" to defend its interests if a trade war breaks out. In addition to tariffs, the Treasury Department went one step further, announcing it would restrict Chinese investment in American technology firms.

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Investors are increasingly anxious that President Trump's crackdown on China will trigger a fierce response that darkens the otherwise bright economic outlook.

Amid the looming threat of a trade war escalation, the World Trade Organization's Director-General Roberto Azevedo urged the sides to talk, warning that there will be "no winners" in this confrontation. Her interview came as CBS's "60 Minutes" said it's going ahead with plans to broadcast an interview on Sunday with adult film star Stephanie Clifford, better known as Stormy Daniels. They would do so "if China and the United States fail to reach a trade compensation agreement within the stipulated time".

"We urge the United States to cease and desist, make cautious decisions, and avoid placing China-U.S. trade relations in danger with the objective of hurting others that eventually end up hurting itself", the statement said.

US Trade Representative Robert Lighthizer indicated the industries could include aerospace, maritime and rail transport equipment, and new energy vehicles. The pause is being viewed in Brussels as an attempt by the White House to pile on the pressure and extract trade concessions on European Union goods exported to the US. For example, South Korea's largest trading partner is China.

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