China May Hike Tariffs on US Pork, Aluminum, Other Goods

Goods targeted for possible higher Chinese tariffs include wine, apples and ethanol

China announced a $3 billion list of U.S. goods for possible retaliation in a tariff dispute with President Donald Trump and girded for a bigger battle over technology policy as financial markets sank on fears of disruption to global commerce.

The Commerce Ministry said higher duties on pork, apples, steel pipe and other goods would offset Chinese losses due to Trump's tariff hike on steel and aluminum imports. It urged Washington to negotiate a settlement but set no deadline.

In a separate dispute with potentially bigger consequences, the ministry criticized Trump's decision Thursday to approve a possible tariff hike on Chinese goods worth up to $60 billion over Beijing's technology policy. It gave no indication of a possible response but the foreign ministry said Beijing will take "all necessary measures" to protect its interests.

Financial markets sank on concern the escalating tensions might disrupt the biggest global trading relationship or lead other nations to raise import barriers.

U.S. stocks sank. In Asia, Tokyo's benchmark tumbled by an unusually large 4.6 percent while the Shanghai Composite index fell 4.5 percent.

The dollar dipped to 104.85 yen as investors shifted into the Japanese currency, which is viewed as a "safe haven" from risk.

China's response Friday appeared to be aimed at increasing domestic U.S. pressure on Trump by making clear which exporters, including farm areas that voted for him in 2016, might be hurt.

"Beijing is extending an olive branch and urging the U.S. to resolve trade disputes through dialogue rather than tariffs," said economist Vishnu Varathan of Mizuho Bank in a report. "Nevertheless, the first volley of shots and retaliatory response has been set off."

The Commerce Ministry said Friday's list was linked to Trump's steel and aluminum tariffs , but companies already were looking ahead to potential disruption from the bigger squabble over American complaints Beijing steals or forces companies to hand over technology.

The list made no mention of jetliners, soybeans or other products that are the biggest U.S. exports to China by value and that the American Chamber of Commerce in China said might be targets. That leaves Beijing options to take more drastic steps.

Friday's announcement should be seen as a "preliminary response," with more sweeping measures if necessary, said Lu Feng, a trade specialist at Peking University's School of National Development.

"China doesn't want a 'trade war,' but if the United States insists, then China must respond," said Lu.

Chinese officials are trying to figure out how to "engage constructively" with the Trump administration, said Jake Parker, vice president for China operations of the U.S.-China Business Council, which represents American companies that do business with China.

"They want to understand what the Trump administration's priority is for China to be able to offset some of these concerns," said Parker. "Until the Trump administration articulates those concerns and how China can address them, it's going to be very, very difficult for China to make those changes domestically."

The proposed measures would impose a 25 percent tariff on pork and aluminum scrap, mirroring Trump's 25 percent charge on steel, according to the Commerce Ministry. A second list of goods including wine, apples, ethanol and stainless steel pipe would be charged 15 percent, the same margin as Trump's tariff hike on aluminum.

Chinese purchases of those goods last year totaled $3 billion, the ministry said. That would be less than 2 percent of China's $153.9 billion of imports of U.S. goods last year a fraction of the goods targeted by Trump's order Thursday in the technology dispute.

American business groups have warned the aluminum and steel tariffs could hurt the U.S. economy and disrupt exports.

The U.S. tariff hike on steel and aluminum imports also has irked Japan, America's closest ally in Asia.

"We have repeatedly told the U.S. side that steel and aluminum imports from its ally Japan will not adversely affect America's national security, and that Japan should be excluded," said Chief Cabinet Secretary Yoshihide Suga.

China's top economic official, Premier Li Keqiang, appealed to Washington on Tuesday to "act rationally" and said, "we don't want to see a trade war."

The higher American duties on aluminum and steel have little impact on China, which exports only a small amount of those products to the United States. But private sector analysts have said Beijing would feel obligated to take action to avoid looking weak in a high-profile dispute.

The Commerce Ministry said the higher U.S. tariffs "seriously undermine" the global trading system. It rejected Trump's contention they are needed to protect U.S. national security.

"The Chinese side urges the U.S. side to resolve the concerns of the Chinese side as soon as possible," the ministry said. It appealed for dialogue "to avoid damage to overall Chinese-U.S. cooperation."

Beijing reported a trade surplus of $275.8 billion with the United States last year, or two-thirds of its global total. Washington reports different figures that put the gap at a record $375.2 billion.

The technology dispute stems from complaints Beijing unfairly compels foreign companies to hand over technology in exchange for market access and supports cyber-spying to steal industrial secrets.

Companies in many industries including auto manufacturing that want to operate in China are required to work through local partners, which requires them to give technology to potential Chinese competitors.

The U.S. Trade Representative's office said Trump's action was in response to "unfair and harmful acquisition of U.S. technology." The USTR said Trump had ordered it to pursue a World Trade Organization case against Beijing's "discriminatory technology licensing."

A USTR statement said possible measures include a 25 percent tariff on Chinese-made aerospace, computer and information technology and machinery but gave no details of what products that might include.

China is unlikely to respond until Washington acts, said Parker. He noted Beijing launched an investigation of imports of U.S. sorghum in February after Trump announced the steel and aluminum tariffs.

"We may see a similar case emerge around soybean and corn as a warning shot," said Parker.

On Tuesday, the Chinese premier promised at a news conference Beijing will "open even wider" to imports and investment as part of efforts to make its economy more productive.

Li said that included eliminating tariffs on drug imports. But he gave no other details and it was unclear whether the planned changes might mollify Washington, the European Union and other trading partners that complain China improperly blocks access to its markets and subsidizes exports.

Li said Beijing would "fully open" manufacturing to foreign competitors, with "no mandatory requirement for technology transfers." However, Chinese officials already insist companies aren't required to hand over technology, so it was unclear how policy might change.

CORRECTION (March 22, 2018, 8:36 p.m. ET): This story has been corrected to show China announced its tariff increases are tentative, instead of saying they are taking effect immediately.

Copyright AP - Associated Press
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