The Trump administration indicated it is willing to negotiate with China on escalating frictions between the world’s two biggest economies, helping to ease fears among investors of a tit-for-tat trade conflict.
Commerce Secretary Wilbur Ross said China’s response isn’t expected to disrupt the U.S. economy. In an interview on CNBC on Wednesday, he said China’s reaction “shouldn’t surprise anyone.” He said the U.S. isn’t entering “World War III” and left the door open for a negotiated solution.
“Even shooting wars end with negotiations,” Ross said.
Earlier on Wednesday, China said it would levy an additional 25 percent levy on about $50 billion of U.S. imports including soybeans, automobiles, chemicals and aircraft. The move matched the scale of proposed U.S. tariffs announced the previous day. The U.S. is allowing 60 days for public feedback and hasn’t specified when the tariffs would take effect, leaving a window open for talks.
U.S. stocks opened sharply lower, but recovered as investors speculated that the flurry of tariffs may not do much damage to the global economy.
[China fires back at Trump with tariffs on 106 U.S. products, including soybeans, cars]
President Donald Trump also downplayed the prospect of a trade war, saying on Twitter Wednesday morning that “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 later tweeted that “when you’re already $500 Billion DOWN, you can’t lose,” in a possible reference to America’s trade deficit with China. Figures from the U.S. Commerce Department put last year’s trade gap with the Asian nation at $337 billion.
The Trump administration is urging China to lower tariffs on cars and open its market to U.S. financial services as part of talks to resolve a rise in trade tensions, a person familiar with the matter said earlier this month.
Investors are weighing the risks of a trade war, with the Trump administration’s latest offensive based on alleged infringements of intellectual property in China. The U.S. is targeting high-tech sectors that Beijing sees as the future for its economy.
While the China retaliation was more “belligerent” than expected, Beijing probably wants to de-escalate tensions by underscoring what’s at stake for both sides, Oxford Economics director of global macro strategy Gaurav Saroliya said in a research note. “Negotiations will probably lead to less disruptive outcomes for both sides,” Saroliya wrote.
In a statement following the U.S. release of details on its China tariffs, Treasury Secretary Steven Mnuchin said the administration “will continue to engage in discussions with China to address these issues of reciprocal trade.”
Beijing’s proposed targets strike at the core of commercial relations between the two countries, and at some of the most politically sensitive goods in core Trump constituencies. For example, China is the world’s largest soybean importer and biggest buyer of U.S. soybeans in trade worth about $14 billion last year. Farming states were also among Trump’s staunchest supports in the election.
Both sides have calibrated their current actions around the figure of $50 billion worth of imports. That number accounts for roughly a third of China’s imports from the U.S. last year, versus less than one-tenth of China’s exports to the U.S., according to data from International Monetary Fund.
The implementation date of China’s retaliatory tariffs depends on the outcome of bilateral negotiations, and the U.S. decisions, Deputy Finance Minister Zhu Guangyao told reporters after a news conference in Beijing. “We believe both countries have the ability and wisdom to address the problem,” Zhu said.
[US gets hit by China with the global trade rules it rewrote]
Industries including aerospace, information and communications technology, robotics and machinery were among those targeted by the U.S. trade representative on Tuesday. The agency said it chose products to minimize the impact on the U.S. economy and consumers.
In addition to advanced technologies such as communication satellites, the U.S. list includes items ranging from various types of steel to television components, medical devices, dishwashers, snow blowers and even flamethrowers.
“The U.S. list suggests that the government is targeting the ‘Made in China 2025′ initiative, while China’s retaliation intends to bring Americans back to the negotiation table,” Zhou Hao, an economist at Commerzbank in Singapore, said in an email.
The release of the list by U.S. Trade Representative Robert Lighthizer leads into a roughly 60-day period when the public can provide feedback and the government holds hearings on the tariffs. The 25 percent tariffs come on top of any existing levies.
[Trump’s call for tariffs creating anxiety in the farm belt]
China’s Made in China 2025 plan was announced in 2015, and highlighted 10 sectors for support on the way to China becoming an advanced manufacturing power, from information technology to robotics and aerospace. China also has a separate development strategy for artificial intelligence, published last year.
“The current tariff measures from both parties are very unlikely to be implemented,” said Ren Qing, a partner at Global Law in Beijing who has advised the Chinese government on its response to the intellectual-property investigation. “People from American industries may exert pressure on the U.S. government and influence final policy implementation.”
Bloomberg writers Eric Martin Katia Dmitrieva Henry Hoenig Tian Chen Xiaoqing Pi Bryce Baschuk Keith Zhai Matt Turner Miao Han and Kevin Hamlin contributed to this report.
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