China hits back with tariffs on cars, farm products

Detroit News staff and wire reports

Washington — The United States and China moved to the brink of a trade war Friday when Beijing said it would hit back with 25 percent tariffs on American goods including cars and farm products. The threat of retaliation came after President Donald Trump said earlier in the day that a 25 percent duty on up to $50 billion in Chinese imports would take effect July 6.

In announcing the U.S. tariffs, Trump said he was fulfilling a campaign pledge to crack down on what he contends are China’s unfair trade practices and its efforts to undermine U.S. technology and intellectual property.

“We have the great brain power in Silicon Valley, and China and others steal those secrets,” Trump said on “Fox & Friends.” “We’re going to protect those secrets. Those are crown jewels for this country.”

The prospect of a U.S.-China trade war weighed on financial markets Friday. The Dow Jones industrial average was down more than 220 points in mid-afternoon trading before recovering somewhat to finish down 84 points. Other stock averages also declined.

The U.S. auto industry pleaded with both countries to walk back from the brink.

“We continue to encourage both governments to work together through negotiation to resolve issues between these two important economies,” Ford Motor Co. said in a statement.

Although most vehicles sold by Detroit automakers in China are built in that market, Ford exported more than 4,000 Mustangs to China last year. Tesla Inc. sold nearly 15,000 cars there. German manufacturers BMW and Daimler AG could be hit by duties on luxury cars built in the U.S. and shipped to China.

Not only that, vehicles built by Detroit carmakers in China and shipped to the U.S. are vulnerable to tariffs threatened by Trump: General Motors Co. builds its Buick Envision compact SUV in Shanghai; the plug-in version of the Cadillac CT6 is built in Jinqiao.

The escalating trade war is “a good example of when nobody wins with a tariff,” said Rebecca Lindland, senior analyst at Kelley Blue Book.

“It’s also an example of when there are unintended consequences like punishing U.S. companies like General Motors and Buick,” she said. “In addition to GM being hurt, BMW and Mercedes, while they are not U.S. companies, they employ U.S. people who make the vehicles that get imported into China. This is the equivalent of a significant corporate tax.”

John Bozzella, CEO of the Association of Global Automakers, which lobbies for foreign-owned car manufacturers in the U.S., was blunt: “Make no mistake, American customers and American autoworkers will be harmed by these actions.”

The U.S. tariffs will cover 1,102 Chinese product lines worth about $50 billion a year. Included are 818 items, worth $34 billion a year, from a list of 1,333 the administration had released in April. After receiving public comment, the U.S. removed 515 product lines from the list, including TVs and some pharmaceuticals, according to a senior administration official who briefed reporters on condition of anonymity.

The tariffs announced by China also cover about $34 billion in exports from the U.S. In addition to automobiles, the list of 545 product categories includes a variety of agricultural products, including soybeans, corn and wheat, along with beef, pork and poultry. A second set of tariffs to begin at a later date listed other goods including coal, crude oil, gasoline and medical equipment.

The administration is targeting an additional 284 Chinese products, which it says benefit from Beijing’s strong-armed industrial policies, worth $16 billion a year. But it won’t impose those tariffs until it gathers public comments. U.S. companies that rely on the targeted imports — and can’t find substitutes — can apply for exemptions from the tariffs.

The Trump administration has sought to protect consumers from a direct impact from the tariffs, which amount to a tax on imports. The tariffs target mainly Chinese industrial machinery, aerospace parts and communications technology, while sparing such consumer goods as smartphones, TVs, toys and clothes that Americans purchase by the truckload from China.

These tariffs will impose higher costs on U.S. companies that use the equipment. And over time, those costs could be passed on to consumers. But the impact won’t be as visible as if consumer products were taxed directly.

By contrast, the Trump administration earlier this year imposed steep tariffs on imported washing machines. By May, the cost of laundry equipment had jumped 17 percent from two months earlier, according to government data.

The administration characterized the tariffs it announced Friday as entirely proper.

“It’s thorough, it’s moderate, it’s appropriate,” U.S. trade representative Robert Lighthizer said on Fox Business Network’s “Mornings With Maria.”

Lighthizer added, “Our hope is that it doesn’t lead to a rash reaction from China.”

But Beijing’s Commerce Ministry retorted in a statement: “The Chinese side doesn’t want to fight a trade war, but facing the shortsightedness of the U.S. side, China has to fight back strongly. We will immediately introduce the same scale and equal taxation measures, and all economic and trade achievements reached by the two sides will be invalidated.”

The president has already imposed tariffs on steel and aluminum imports from Canada, Mexico and European allies, sparking retaliatory threats from some of America’s closest longtime allies. But his proposed tariffs against China risk igniting a damaging trade war involving the world’s two biggest economies.

Trump’s decision follows his summit with North Korean leader Kim Jong Un. The president has coordinated closely with China on efforts to pressure Pyongyang to eliminate its nuclear arsenal. But he signaled that whatever the implications for that or other issues, “I have to do what I have to do” to address China’s trade policies.

By June 30, the administration is expected to finish writing rules to restrict China’s ability to invest in U.S. technology.

Most of all, the U.S. tariffs are a response to China’s attempts to supplant U.S. technological dominance, including outright theft of trade secrets and its requirement that U.S. companies share technology in exchange for access to the Chinese market.

Wall Street has viewed the trade tensions with concern, fearful that they could strangle economic growth and undermine the benefits of the tax cuts Trump signed into law last year.

“Imposing tariffs places the cost of China’s unfair trade practices squarely on the shoulders of American consumers, manufacturers, farmers, and ranchers,” said Thomas Donohue, president of the U.S. Chamber of Commerce. “This is not the right approach.”

Political reactions to Friday’s announced tariffs cut across party lines. Senate Minority Leader Chuck Schumer, D-N.Y., said Trump was “right on target.”

“China is our real trade enemy, and their theft of intellectual property and their refusal to let our companies compete fairly threatens millions of future American jobs,” Schumer added.

But Rep. Dave Reichert, R-Wash., said he disagreed with the action because “Americans will bear the brunt instead of China.”

Bloomberg News contributed.