US slams hefty new tariffs on China as NATO summit begins
Asian markets dipped as US President Donald Trump raised the pressure on Beijing in a trade war over its intellectual property practices by publishing a list of an additional $US200 billion worth of Chinese goods he plans to hit with a 10% tariff.
The US was expected to impose new tariffs targeting around $US16b in Chinese goods this week, and China had been expected to respond with similar duties. Beijing has not yet responded because it doesn’t import enough from the US to match the $US200b figure.
The new round of tariffs targets more than 6000 trade lines including a wide range of low-end manufactured products from handbags, textiles, tires, leather goods, ski gloves to refrigerators to TVs. Also on the list were farm products, seafood, building supplies and certain types of electronics.
In China, Hong Kong's Hang Seng index dropped 2% while the Shanghai Composite fell 1.8%. Japan's benchmark Nikkei 225 index shed 1.7%.
Beijing's Commerce Ministry called the new tariff list "totally unacceptable" and says China would impose countermeasures and file a lawsuit at the World Trade Organisation. The Chinese foreign ministry said Washington’s threats were “typical bullying” and described the dispute as a “fight between unilateralism and multilateralism.”
"China is shocked by the US move and the Chinese government, as always, will have to react to defend the core interests of our nation and people," the Commerce Ministry says.
House ways and means chairman Kevin Brady urged Mr Trump and Chinese President Xi Jinping "to meet soon face-to-face to craft a solution to establish a fair and lasting trade relationship between our two countries."
Senate finance committee chairman Orrin Hatch also expressed alarm.
"Although I have supported the administration's targeted efforts to combat China's technology transfer regime, tonight's announcement appears reckless and is not a targeted approach. We cannot turn a blind eye to China's mercantilist trade practices but this action falls short of a strategy that will give the administration negotiating leverage with China while maintaining the long-term health and prosperity of the American economy."
The US tech industry and other business groups say they oppose the move even though the administration says the tariffs are to protect the US's technological lead and put pressure on China to stop bad practices.
"Trade is critical to economic growth and supports millions of jobs from Silicon Valley to the savannahs of the heartland,” Dean Garfield, chief executive of the Information Technology Industry Council, says in a statement.
No formal negotiations between the two economies are scheduled but the Office of the US Trade Representative (USTR) will hold a hearing on the proposed tariffs August 20-23 as part of a public comment period that ends August 30. A final decision will come sometime after that.
China's Ministry of Commerce is considering ways to use the extra revenue from its own tariffs on $US34 billion worth of US goods to mitigate the effects of the trade war on businesses and workers.
"In the process of determining which [US] products should be subject to retaliatory tariffs, the Chinese side has fully considered substitution for imported goods and the overall impact on trade and investment," it says, referring to a faster rollout of various economic and investment incentives and continuing assessments of the trade war's impact on a range of sectors.
Automobiles and home furnishing retailers are expected to be hit particularly hard by the new US tariffs because China supplies 65% of US furniture imports, according to analysts at Goldman Sachs.
The prospect of a 10% tariff on Chinese furniture imports sent shares of online home store WayFair Inc down nearly 4% while shares of Restoration Hardware fell nearly 6%. Shares of Advance Auto Parts Inc were down 1.6%, Autozone Inc fell 1.8% and O’Reilly Automotive almost 2%.
The Dow Jones Industrial Average fell 219.21 points, or 0.88%, to 24,700.45, the S&P 500 lost 19.82 points, or 0.71%, to 2,774.02 and the Nasdaq Composite dropped 42.59 points, or 0.55%, to 7716.61.
The dollar broke through the psychological barrier of 112 yen for the first time since January, rising as much as 1.3% to a top of 112.03 yen. Wednesday's strong flows into the dollar/yen trade continued a trend that began after the United States last week reported decent employment data and a pickup in wages.
Both the yen and the dollar act as safe-haven investments but analysts say the strength of the US dollar against the yen means investors have faith in the US economy rather than seeking safety.
The biggest losers were the offshore Chinese yuan, which slipped to an 11-month low, and the Australian dollar, which fell as much as 1.2%.
Copper lost 3.12% to $US6135.00 a ton. Three-month aluminium on the London Metal Exchange lost 1.41% to $US2060.50 a ton.
Brent crude futures tumbled, settling at $US73.40 per barrel, down $US5.46 or 6.92%. US crude oil futures settled $US3.73, or 5.03%, lower at $US70.38 per barrel.
Mr Trump criticised NATO allies’ military spending levels as he began his seven-day tour through Europe – one that starts with the NATO summit in Belgium and ends with a talk with Russian President Vladimir Putin in the Finnish capital of Helsinki.
“So, I have NATO, I have the UK, which is in somewhat turmoil, and I have Putin. Frankly, Putin may be easiest of them all. Who would think?” Mr Trump asked reporters yesterday at the White House.
The US president described UK Prime Minister Theresa May as facing turmoil and, when asked whether she should remain in power, he replied, “that’s up to the people.”
“NATO has not treated us fairly but I think we’ll work something out,” Mr Trump told reporters on the White House lawn, adding “we pay far too much, and they pay far too little … But we will work it out and all countries will be happy.”
“US doesn’t have and won’t have a better ally than EU,” European Council president Donald Tusk retorted in a message sent on Twitter. Mr Tusk added “we spend on defence much more than Russia and as much as China. I hope you have no doubt this is an investment in our security, which cannot be said with confidence about Russian and Chinese spending.”
“We are stronger together than apart,” NATO secretary general Jens Stoltenberg claimed in a retort to Mr Trump’s comments but the US leader countered by asking how the NATO alliance could be stronger when Germany is “making Russia richer,” referring to energy pipeline deals Berlin recently has signed with Moscow.
Germany’s energy spending “is a national decision,” commented Mr Stoltenberg, adding, “It’s not for NATO to settle that issue.”
One senior European official commented that NATO members are preparing for a worst-case scenario should Mr Trump repeat his threat to end or curtail defence cooperation, with allies not on track to hit their defence funding target of 2% of GDP by 2024.
Just as the US President arrived in Brussels, however, the UK government announced it will send an additional 440 troops to help support the NATO mission in Afghanistan.