President Trump socked China with up to $60 billion in proposed trade tariffs, investment restrictions and plans for a formal complaint to the World Trade Organization, drawing immediate threats of retaliation from Beijing and sending the stock market into an epic nosedive Thursday over fears that the globe’s two biggest economies were heading for a trade war.
Following though on the tough talk on trade that helped put him in the White House, Mr. Trump said the U.S. was finally cracking down on decades of unfair trade practices and theft of intellectual property. U.S. officials say these Chinese practices contributed to bilateral trade deficits for the U.S. of hundreds of billions of dollars annually.
“We are doing things for this country that should have been done for many, many years,” the president said as he signed an order for tariffs and other get-tough measures on China.
In comments that unnerved investors, Mr. Trump added, “This is the first of many.”
The tariffs instruct the Commerce Department to target Chinese information technology, consumer electronics and telecoms, imposing import costs of $50 billion to $60 billion that roughly equal the value of U.S. technology lost to China because of the country’s onerous trade rules.
China vowed retaliation.
“China is not afraid of and will not recoil from a trade war,” the Chinese Embassy in Washington said in a statement. It said Mr. Trump’s tariffs would backfire and “directly harm the interests of U.S. consumers, companies, and financial markets.”
Despite its huge surpluses, China is not without weapons in a trade fight. Beijing has signaled that it could strike back by cutting its soybean purchases from U.S. farmers. China is the biggest market for soybeans and many other U.S. agricultural products and is a crucial market for American aircraft, cotton, electrical machinery, cars and trucks, corn and coal.
China is also the world’s largest holder of U.S. government debt — a double-edged sword as any move to hurt U.S. government credit could undercut the value of Beijing’s holdings as well.
The sell-off on Wall Street was deep and immediate. All 30 stocks in the Dow Jones lost ground, and investment safe havens such as gold and U.S. Treasury bonds jumped in value.
The Dow Jones industrial average tumbled more than 724 points, or 2.93 percent, to fall below the 24,000 mark. The broader S&P 500 slipped more than 68 points, or 2.52 percent, and the Nasdaq fell more than 178 points, or 2.43 percent.
It was the worst day for the Dow since a chaotic sell-off in February and the blue chip index’s worst March free fall in 17 years.
“If the Dow is allowed to vote, you can see what their vote is today: They don’t like it,” Rick Helfenbein, president of American Apparel & Footwear Association, said on Fox Business Network.
Like many U.S. industries still in the dark on where exactly the Trump administration’s tariffs will land, Mr. Helfenbein said he hoped the tariffs wouldn’t hit his sector.
The China decision came close on the heels of a string of other trade moves to implement Mr. Trump’s “America first” economic agenda and reverse what he sees as decades of misguided U.S. trade policy promoting open markets and multilateral trade agreements.
The administration announced tariffs on steel and aluminum imports this month, although a number of markets, including Canada, Mexico, the European Union, South Korea and Australia, will be exempted initially from the tariffs. Mr. Trump since the beginning of the year has put tariffs on Chinese solar panels and South Korean washing machines. A week later, China’s biggest maker of solar panels announced plans to open a U.S. factory.
The U.S. is also locked in lengthy talks with Canada and Mexico over Mr. Trump’s demand for a renegotiation of the North American Free Trade Agreement. The president has vowed to leave the 24-year-old pact if a new agreement is not reached.
Commerce Secretary Wilbur L. Ross Jr., a prime advocate of the tariffs, acknowledged that China was likely to retaliate against American companies.
Many expect Beijing to target states where the president is most popular, but Mr. Ross played down the prospect of an all-out trade war.
“We will end up negotiating these things rather than fighting over them, in my view,” Mr. Ross told Bloomberg News.
With U.S. companies long complaining about China’s failure to protect foreign investors’ intellectual property rights, the president’s order focused on technology imports. But the list of items subject to the tariff could expand to include such items as clothing and shoes.
The tariffs are being imposed under Section 301 of the Trade Act of 1974 that authorizes the president to take action or retaliation against unjustified, unreasonable or discriminatory foreign trade laws that hurt U.S. commerce. They are part of a package of measures to combat Beijing’s aggressive trade tactics, including forced intellectual property transfers for U.S. companies as the price of doing business in China.
The actions included:
⦁ Adding 25 percent to tariffs on products supported by China’s unfair industrial policy, including aerospace, cellphones, computers and machinery.
⦁ Opening a World Trade Organization case against China’s discriminatory technology licensing practices.
⦁ New restrictions on Chinese companies buying into U.S. technology business.
At the White House signing ceremony, Mr. Trump was surrounded by former top national security officials and CEOs from defense companies Raytheon, Lockheed Martin, General Atomics and Leidos.
Lockheed Martin CEO Marillyn Hewson called it a “very important moment for our country.”
“We are addressing what is a critical area for the aerospace and defense industry, and that is protecting our intellectual property,” she said. “That is the lifeblood of our companies. And so we very much welcome this action on the part of the Trump administration and the president of the United States.”
U.S. Trade Representative Robert Lighthizer, who spearheaded the action against China, said the Trump administration was moving to protect America’s future.
“Technology is really the backbone of the future of the U.S. economy,” he said.
Still, leaders from many business sectors overwhelmingly opposed the tariffs and warned that it would be a tax ultimately paid by U.S. consumers.
“The internet industry has serious concerns with the impact of these tariffs — and potential retaliatory actions — on American jobs, consumers, and the digital economy,” said Melika Carroll of the Internet Association, an industry lobbying group.
The Business Roundtable, an association of CEOs from the biggest U.S. companies, said in a statement that the Trump tariffs “will only raise prices in America, make American companies and products less competitive, and harm U.S. workers and consumers.”
Mr. Trump brushed aside the concerns.
Emphasizing that America’s $800 billion trade deficit with the world could not be allowed to continue, Mr. Trump said other trading partners such as South Korea and the European Union were begging to make deals in the face of his tough trade policies.
The U.S. trade deficit with China topped $375 billion last year, but Mr. Trump cited calculations that put it over $500 billion.
He said the tariffs, which do not take effect immediately, had already brought Beijing to the negotiating table. Since taking office, Mr. Trump has been pressing Chinese President Xi Jinping and other top officials to rein in unfair trade restrictions and lower the trade deficit by $100 billion.
“We are in the midst of very major and very positive negotiations,” the president said.
But pulling the trigger on tariffs could pressure Mr. Xi to respond at least as hard to show his own government that he can’t be bullied.