Trump's China trade action roils markets

Washington

PRESIDENT Donald Trump's promise to take tough action against China's unfair economic practices was one of his most popular campaign ideas. But as the United States prepares stiff trade measures and China retaliates, stock markets have plummeted and some of America's biggest companies are pushing back.

Industry giants such as General Electric and Goldman Sachs, as well as agricultural companies, have lodged objections with the White House, saying that tariffs on both sides of the Pacific and limitations on investments will cut off US companies from the world's most lucrative and rapidly growing market.

China imposed tariffs on Monday on more than 100 US products, including pork, fruit, recycled aluminium and steel pipes. Fears of an incipient trade war between the world's two largest economies sent the Standard & Poor's 500 stock index tumbling 2.23 per cent and pushed markets into correction territory. Technology stocks bore the brunt of the slump, as a recent spate of bad news about tech firms such as Facebook, Tesla and Amazon spooked investors. Asian markets fell more modestly in early-Tuesday trading.

China's action could be an escalation in a much broader trade dispute. The announcement was a direct response to the Trump administration's tariffs on imports of steel and aluminium, which were directed at a range of countries, including China.

Since then, the White House has announced another trade measure targeted specifically at China that would place tariffs on at least US$50 billion worth of products imported to the US and would restrict investment flows between the two economic giants. This week, the Trump administration is expected to announce a list of Chinese imports subject to tariffs, which could include high-tech products such as semiconductors as well as cheap electronics and other goods that many Americans buy.

Josh Kallmer, the senior vice-president for global policy at the Information Technology Industry Council, an advocate for companies like Google, Facebook, Apple, Microsoft and IBM, said his group had been largely supportive of the administration's targeting of China's unfair trade practices. But the group had made it clear to the White House that it would not be pleased with any measure that had tariffs "as the primary or even a significant remedy." "The reason is that it would be a tax on consumers," Mr Kallmer said, "precisely the people we are trying to support." Many of the trade measures that Mr Trump has proposed, including the steel and aluminium tariffs, have divided his own advisers, the business community and the Republican Party. But the White House has boasted that its targeting of China's trade practices has broad support from industries on the losing end of the Chinese approach.

Companies in technology, investment and other industries now say that the measures the administration is taking to help them may actually end up doing irreparable harm to supply chains they have built up over decades. Any US company that wants to be a global player cannot afford to lose access to China's growing market, executives say.

Technology companies argue that the restrictive measures the administration is taking to help protect them could end up penalising American manufacturing, raising costs and making their companies less competitive globally. And industries most vulnerable to retaliation, such as agriculture, are protesting about losing valuable export opportunities. While the Chinese did not target soyabeans in their initial tariffs list, many in the soyabean industry worry they will be penalised in a trade dispute given China's importance as a market for exports.

The 25 per cent tariff on pork that China imposed on Monday is expected to be particularly harmful, including in regions that supported the President, such as Iowa, North Carolina and Indiana. Last year, US farmers sent more than US$1 billion worth of pork to China, their largest export market by value after Japan and Mexico. "Because we're so blessed to have America feed the world, we're also the first industry to get slammed whenever there are trade difficulties between the US and other countries," said Denise Bode, the coordinator for the American Fruit and Vegetable Processors and Growers Coalition.

Companies are waiting anxiously for the administration to release a list of Chinese products this week that will be subject to tariffs - most likely the kind of high-tech products that the administration has accused China of targeting. The retail industry, which lobbied the administration and Congress against an early plan to impose tariffs on Chinese-made apparel and footwear, is now cautiously optimistic that its products will be exempt.

Restrictions on Chinese investments are expected to follow in the coming weeks. Administration officials have said those rules will aim to restore reciprocity with the Chinese, though it is not clear if the US will go so far as to bar Chinese companies from investing in the same industries that China restricts. The White House is also considering the use of an emergency economy powers act that could allow it to restrict Chinese investments. Speaking on Monday on CNBC, the White House trade adviser, Peter Navarro, defended the administration's tough actions on China and said investors should not fear a trade war.

"Everybody needs to relax," Mr Navarro said. "The economy is as strong as an ox." NYTIMES