The war of words between the Trump administration and China over trade has escalated after Beijing threatened to fight back “at any cost” against new US proposals for an additional $100bn (£71bn) in tariffs.
Chinese officials said on Friday they would “definitely fight back firmly” should the US persist in using “protectionism”, in a warning issued hours after President Trump unexpectedly suggested imposing extra trade tariffs on goods shipped from China to the US – on top of the $50bn worth of tariffs announced last month.
On Saturday, China’s state media warned that US protectionism would end in defeat and that the only option now was to hit America so hard it would “remember the pain”.
“If the US says that it will pay any price, it must be firmly attacked,” China’s official Xinhua news agency said.
Wall Street slumped again on Friday following a week of rising tensions between the two countries that has rattled financial markets and raised the prospect of disruption to world trade. The Dow Jones Industrial Average was down 572 points at the close – a drop of 2.3% – in New York, as investors reacted to renewed hostilities and disappointing US jobs figures.
Trump also hit out at the World Trade Organisation as he responded to China opening a challenge against the tariff plans at the WTO. Trump tweeted that China gets “tremendous perks and advantages” at the World Trade Organisation because it is considered a developing nation. “Does anybody think this is fair. We were badly represented. The WTO is unfair to US,” he said.
Speaking to reporters at the White House, press secretary Sarah Sanders dismissed concerns about a possible trade war.
“The United States is responding to Chinese actions that have gone on for decades,” she said. “The Chinese have engaged in unfair and illegal trade practices for many years and this is simply a response to that.”
Sanders also brushed off concerns about the falling stock market, insisting “the actions of the president have strengthen our economy” and pointing to his legislation to lower taxes.
Although hope remains for averting a full-blown trade war, analysts at Oxford Economics said failure to avoid a clash would trigger a “pronounced” slowdown for the world economy by knocking 0.5% off worldwide growth. The British consultancy said under that scenario GDP would increase by about 2.5% next year instead of the previously forecast rate of 3%. That would equate to as much as $617bn being lost from world economic growth.
For the world’s two largest economies, the price tag would be around 1% of GDP growth, said Oxford Economics, worth about $154bn to the US and $132bn to China.
Late on Thursday, Trump instructed the Office of the United States Trade Representative, the agency responsible for developing and recommending trade policy, to consider imposing an extra $100bn of import tariffs on Chinese goods arriving in the US. They would come on top of $50bn that have already been announced.
Should they come to pass, the cumulative effect would be to impose heavy taxes on almost a third of total US imports from the Asian country. Meanwhile, if China was to put forward a like-for-like response, the price tag would be as much as 0.3% in lost economic growth for both countries as a consequence.
Such an escalation in the tit-for-tat dispute would significantly raise the stakes from a more manageable 0.1% hit to GDP for both countries forecast by some economists. According to UBS, the initial list of tariffs put forward by the Trump White House on more than 1,300 goods would have a near-negligible effect on US inflation.
Although certain sectors would be affected, the aggregate impact for the country as a whole would be small. About a fifth of the goods on the $50bn list, which ranges from televisions to guns and ammunition, have minimal trade values. Meanwhile, more important goods such as mobile phones and toys were omitted from the list.
Both countries have so far shown no inclination of backing down, with each ratcheting up the pressure on the other to respond. After the US unveiled details of its initial $50bn of tariffs, China responded by saying it would impose levies worth the same amount, albeit covering fewer goods of higher value – such as soyabeans and aircraft.
Trump labelled the response from Beijing as an “unfair retaliation” at a time when the US has had problems with China allegedly stealing the intellectual property of American companies looking to do business there.
But if China did try to match the president’s latest threats for as much as $150bn in tariffs on Chinese goods, it would need to cover more than the total value of US exports to the country. Other options could be for Beijing to halt the purchase of US bonds, or a move to disrupt supply chains essential for US firms, according to analysts.
Mark Cliffe of ING Bank said: “The signal is clear: China will not be pushed into concessions, and is willing to accept some economic pain in what Beijing may ultimately see as a political dispute.”