China meets Trump’s tariff hardball with pledge to endure

China is prepared for a ‘protracted war’ and doesn’t fear sacrificing short-term economic interests

By BLOOMBERG

BEIJING • After a weekend of claims by US President Donald Trump that he has the upper hand in the trade war with China, Beijing responded through state media by saying the nation is ready to endure the economic fallout.

China is prepared for a “protracted war” and doesn’t fear sacrificing short-term economic interests, according to an editorial in the nationalist Global Times on Sunday.

“Considering the unreasonable US demands, a trade war is an act that aims to crush China’s economic sovereignty, trying to force China to be a US economic vassal.”

The exchange of barbs between the two sides follows the release late last Friday in Beijing of a tariff list designed to retaliate against the US threat to impose new duties on US$200 billion (RM816 billion) of Chinese imports. The worsening of the tension comes amid a slowing of China’s economy, declines in the currency and a bear market in stocks.

Trump told an audience of diehard supporters on Saturday that playing hardball on trade is “my thing”.

“We have really rebuilt China, and it’s time that we rebuild our own country now,” Trump said on Saturday during about an hour of freewheeling remarks at a rally outside Columbus, Ohio.

China’s market declines weaken that nation’s bargaining power in the escalating trade war, he added.

Recent comments and developments in the trade dispute:

BEIJING • After a weekend of claims by US President Donald Trump that he has the upper hand in the trade war with China, Beijing responded through state media by saying the nation is ready to endure the economic fallout.

China is prepared for a “protracted war” and doesn’t fear sacrificing short-term economic interests, according to an editorial in the nationalist Global Times on Sunday.

“Considering the unreasonable US demands, a trade war is an act that aims to crush China’s economic sovereignty, trying to force China to be a US economic vassal.”

The exchange of barbs between the two sides follows the release late last Friday in Beijing of a tariff list designed to retaliate against the US threat to impose new duties on US$200 billion (RM816 billion) of Chinese imports. The worsening of the tension comes amid a slowing of China’s economy, declines in the currency and a bear market in stocks.

Trump told an audience of diehard supporters on Saturday that playing hardball on trade is “my thing”.

“We have really rebuilt China, and it’s time that we rebuild our own country now,” Trump said on Saturday during about an hour of freewheeling remarks at a rally outside Columbus, Ohio.

China’s market declines weaken that nation’s bargaining power in the escalating trade war, he added.

Recent comments and developments in the trade dispute:

• John Bolton said US will take the trade war “far enough to get China to change”.
• Larry Kudlow said Trump won’t back off of China.
• Trump said US has upper hand with China tit-for-tat becomes the norm.
• Trump continued his focus on tariffs on Sunday morning, tweeting that the duties are working “big time” and that imported goods should be taxed or made in the US. He also suggested duties will allow paying down “large amounts of the US$21 trillion in debt that has been accumulated” while reducing taxes for Americans.

“Every country on earth wants to take wealth out of the US, always to our detriment,” Trump tweeted, “I say, as they come, tax them.”

The yuan pared some gains following a rally triggered by a surprise China central bank move to make it more expensive to bet against the currency. China stepped in last Friday to try to cushion the yuan after a record string of weekly losses saw the currency closing in on the key milestone of seven per dollar.

China’s current account returned to a surplus in the second quarter after a surprise deficit in the first three months of the year. “Policymakers will pay more attention on the changes in current account as it approaches a balance near zero, signalling less room for currency appreciation,” according to Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Bank Ltd in Hong Kong.

Duties ranging from 5% to 25% will be levied on 5,207 kinds of imports from America if the US delivers its proposed taxes on another US$200 billion of Chinese goods, the Ministry of Finance said in a statement on its website late last Friday.

Including the new tariffs already in force, China has now identified almost 6,000 items for higher import taxes, including liquid natural gas, soybeans and other products.

That covers more than twothirds of the value of China’s imports from the US, but it excludes products such as big aeroplanes and some computer chips, which China struggles to produce domestically.

“Chinese buyers don’t have any bargaining power on these products. Even if the trade war escalates, China would rather lift the 25% tariffs to 50%, instead of imposing any tariffs on integrated circuits or big airplanes,” according to Larry Hu, head of China economics at Macquarie Securities Ltd in Hong Kong. “What’s the point of imposing tariffs? Chinese companies would have to pay all the additional costs.”

In addition, more than 500 goods on the lists aren’t traded at all, and China imported less than a million dollars worth of about another 2,000 items, according to a Bloomberg analysis of 2016 trade flows. Hu said one speculation about these phantom items is that the government is bluffing to create a longer list.

Trump last week ordered officials to consider imposing a 25% tax on US$200 billion worth of imported Chinese goods, up from an initial 10% rate. The move was intended to bring China back to the negotiating table for talks over US demands for structural changes to the Chinese economy and a cut in the bilateral trade deficit, but China’s response suggests that tactic hasn’t worked.

“In the face of the bullying of the Trump administration, Beijing must remain sober-minded and never let emotion override reason when deciding how to respond,” according to an editorial by the China Daily, the flagship state-run English newspaper.

“Given China’s huge market, its systemic advantage of being able to concentrate resources on big projects, its people’s tenacity in enduring hardships and its steadiness in implementing reform and opening-up policies, the country can survive a trade war.”