Trump raises tariffs on Chinese goods as trade war escalates
Washington — President Donald Trump angrily escalated his trade fight with China on Friday, raising retaliatory tariffs and ordering American companies to consider alternatives to doing business there.
He also blamed Jerome Powell, the man he appointed as chairman of the Federal Reserve, for the state of the domestic economy, wondering who was a “bigger enemy” of the U.S. – Powell or Chinese President Xi Jinping.
Even by the turbulent standards of the Trump presidency, his actions, all done via Twitter, were notable, sending markets sharply lower and adding to a sense of uncertainty on the eve of his trip to France for a meeting of global economic powers.
Trump’s move came after Beijing announced Friday morning that it had raised taxes on U.S. products. He huddled with advisers, firing off tweets that attacked China and the Fed. And he mockingly attributed a Wall Street drop of 573 points to the withdrawal of a marginal candidate from the Democratic presidential race. The Dow Jones average eventually closed down 623 points.
The president attacked the Fed for not lowering rates at an informal gathering in Jackson Hole, Wyoming, where no such action was under consideration. Powell, speaking to central bankers, gave vague assurances that the Fed would act to sustain the nation’s economic expansion, but noted that the central bank had limited tools to deal with damage from the trade dispute.
Trump said he would be raising planned tariffs on $300 billion in Chinese goods from 10% to 15%. The Office of the U.S. Trade Representative also said existing tariffs on another $250 billion in Chinese imports would go from 25% to 30% on Oct. 1 after receiving feedback from the public.
The impact could be sweeping for consumers.
“With each percentage point added to the tariff hikes, it becomes more and more difficult for importers not to pass the costs on to the U.S. consumer,” said Wendy Cutler, a former U.S. trade negotiator now at the Asia Society Policy Institute. “And this is not to mention the uncertainty that these increases contribute to the overall business environment.”
Trump acted hours after Beijing said it would hike tariffs on $75 billion in U.S. imports, a move some economists fear could tip a fragile global economy into recession.
The president appeared caught off-guard by China’s tariff increase, and was angry when he gathered with his trade team in the Oval Office before departing for France, according to two people familiar with the meeting who spoke to The Associated Press on condition of anonymity because they were not authorized to disclose closed-door conversations.
Administration officials, including U.S. Trade Representative Robert Lighthizer and adviser Peter Navarro, discussed potential retaliatory options. Treasury Secretary Steve Mnuchin, returning from vacation, joined by phone.
Earlier Friday, the president said he “hereby ordered” U.S. companies to seek alternatives to doing business in China. The White House did not cite what authority the president could use to force private businesses to change their practices.
Trump’s latest escalation will impose a burden on many American households. Even before he announced an increase Friday, J.P. Morgan had estimated that Trump’s tariffs would cost the average household roughly $1,000 a year if he proceeded with his threats.
Businesses large and small joined in a chorus of opposition to the intensifying hostilities.
“It’s impossible for businesses to plan for the future in this type of environment,” said David French, senior vice president of government relations at the National Retail Federation. “The administration’s approach clearly isn’t working, and the answer isn’t more taxes on American businesses and consumers. Where does this end?”
If Trump goes ahead with all the tariffs he’s announced, they would cover just about everything China ships to the United States.
China, for its part, slapped new tariffs of 5% and 10% on $75 billion of U.S. products in retaliation. Like Trump’s, the Chinese tariffs will be imposed in two batches – first on Sept. 1 and then on Dec. 15.
China will also go ahead with previously postponed import duties on U.S.-made autos and auto parts, the Finance Ministry announced.
Trump tweets Friday included one declaring, “Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing … your companies HOME and making your products in the USA.”
French, at the National Retail Federation, said it was “unrealistic for American retailers to move out of the world’s second largest economy. … Our presence in China allows us to reach Chinese customers and develop overseas markets.”
Jay Foreman, CEO of Basic Fun!, a Florida toy company that imports from China, said Trump’s demand to American companies was outrageous.
It was an “unprecedented statement for a president to make to private business when there is no national security issue involved,” he said.
The 13-month-long feud between the U.S. and China has been rattling financial markets, disrupting international trade and weakening prospects for worldwide economic growth.
Washington accuses China of using predatory tactics - including outright theft of U.S. trade secrets - in an aggressive drive to turn itself into a world leader in cutting-edge technologies such as artificial intelligence and electric cars.
Twelve rounds of talks have failed to break the impasse, though more negotiations are expected next month. Chinese leaders have offered to alter details of their policies but are resisting any deal that would require them to give up their aspirations to become a technological powerhouse.
The two countries are also deadlocked over how to enforce any agreement.
China’s announced tariff hikes – and Trump’s response – are the latest signs that both countries are digging in.
“China is signaling yet again that it has no intention of backing off from the trade war, further reducing the likelihood of the U.S. and China agreeing on any sort of trade deal in the coming months,” said Cornell University economist Eswar Prasad, former head of the China division at the International Monetary Fund.
Tariff increases on Sept. 1 apply to 1,700 items ranging from frozen sweet corn, dried beef and pork liver to marble, other building materials and bicycle tires, according to the Chinese Finance Ministry.
Penalties that take effect Dec. 15 cover 3,300 items including coffee, cinnamon, industrial chemicals and scissors, the ministry said.
Most of the goods are being hit for a second time, possibly reflecting Beijing’s reluctance to hurt its own economy by extending penalties to imports needed by its own industries, according Mark Williams of Capital Economics. He said only $11 billion of the $75 billion of goods on the Chinese lists are being hit with penalties for the first time.
Williams noted aircraft and integrated circuits – an important input for Chinese industry – still are exempt from retaliation.
That reflects “a desire to limit the damage that tariffs on U.S. goods could do to its own economy,” said Williams in a report.
The Chinese said tariffs of 25% and 5% would be imposed on U.S.-made autos and auto parts on Dec. 15. Beijing had planned those tariff hikes last year but temporarily dropped them to keep the talks going.
BMW, Tesla, Ford and Mercedes-Benz are likely to be the hardest hit by the Chinese auto tariffs. In 2018, BMW exported about 87,000 luxury SUVs to China from a plant near Spartanburg, S.C. It exports more vehicles to China than any other U.S. auto plant.
Together, Ford, BMW, Mercedes and others exported about 164,000 vehicles to China from the U.S. in 2018, according to the Center for Automotive Research, a think tank in Ann Arbor, Michigan. Most of them are luxury cars and SUVs with higher profit margins that can cover higher U.S. wages. The exports are down from about 262,000 in 2017.
Tesla, which is building a plant in China, last year got about 12% of its revenue by exporting about 14,300 electric cars and SUVs from California to China, according to Barclays. Most of Ford’s exports are from the Lincoln luxury brand, but most of the vehicles it sells in China are made in joint-venture factories.
McDonald reported from Beijing. Associated Press writers Tom Krisher in Detroit, Anne D’Innocenzio in New York and Kevin Freking and Deb Riechmann in Washington contributed to this report.