Tit-for-Tat: China Retaliates with Duties on American Imports

China hit back quickly on Wednesday against U.S. plans to impose tariffs on $50 billion in Chinese goods, retaliating with a list of similar duties on key American imports including soybeans, planes, cars, beef and chemicals in a move that sent global markets reeling.

Beijing moved with exceptional speed after U.S. President Donald Trump’s administration unveiled tariff plans targeting China, acting less than 11 hours later as the trade dispute between the world’s two economic superpowers sharply escalated.

U.S. President Donald Trump, who has long charged that his predecessors served the United States badly in trade matters, rejected the notion that the tit-for-tat moves amounted to a trade war.

“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.,” Trump wrote in a post on Twitter early on Wednesday.

The latest developments sent shivers through global stock markets and commodities.

Shares in U.S. exporters of everything from food to planes were hammered with a list of duties on key U.S. imports including soybeans, planes, cars, beef and chemicals.

By mid-morning in New York, shares in U.S. aerospace giant Boeing Co were down 3.3 percent while agricultural machinery maker Deere & Co had slipped 3.9 percent. The Dow Jones Industrial Average was down 0.91 percent while the S&P 500 fell 0.59 percent. The U.S. dollar also fell.

While Washington targeted products that benefit from Chinese industrial policy, including its “Made in China 2025” initiative to replace advanced technology imports with domestic products in strategic industries such as advanced IT and robotics, Beijing’s appeared aimed at inflicting political damage.

For example, the U.S. farm belt strongly backed Trump in the 2016 U.S. election.

Because the actions will not be carried out immediately, there may be room for maneuver. Publication of Washington’s list starts a period of public comment and consultation expected to last around two months. The effective date of China’s moves depends on when the U.S. action takes effect.

U.S. Commerce Secretary Wilbur Ross said in an interview with CNBC that it would not be surprising if the U.S. and China trade actions led to negotiations, although he would not speculate on when this might happen.

Investors were wondering, nonetheless, how far one of the worst trade disputes in many years could escalate.

“The assumption was China would not respond too aggressively and avoid escalating tensions. China’s response is a surprise for some people,” said Julian Evans-Pritchard, senior China economist at Capital Economics, noting that neither side had yet called for enforcement of the tariffs.

“It’s more of a game of brinkmanship, making it clear what the cost would be, in the hopes that both sides can come to agreement and none of these tariffs will come into force,” said Evans-Pritchard.

U.S.-made goods that appear to face added tariffs in China based, on an analysis of Beijing’s list, include Tesla Inc electric cars, Ford Motor Co’s Lincoln auto models, Gulfstream jets made by General Dynamics Corp and Brown-Forman Corp’s Jack Daniel’s whiskey.

Unlike Washington’s list, which was filled with many obscure industrial items, China’s list strikes at signature U.S. exports, including soybeans, frozen beef, cotton and other key agricultural commodities produced in states from Iowa to Texas that voted for Trump in the 2016 presidential election.

Information technology products, from cellphones to personal computers, largely escaped the latest salvo of U.S.-China trade measures despite accounting for a significant portion of bilateral trade.

China ran a $375 billion goods trade surplus with the United States in 2017. Trump has demanded that the China cut the trade gap by $100 billion.

by Reuters