WASHINGTON (REUTERS, AFP, XINHUA) - United States President Donald Trump said on Thursday (Aug 1) that he would impose a 10 per cent tariff on the remaining US$300 billion (S$413 billion) of Chinese imports, starting on Sept 1, after negotiators failed to make progress in US-China trade talks, sending shockwaves through US markets.
Mr Trump later told reporters he could further ratchet up the tariff rate – even beyond 25 per cent – depending on progress in talks with Chinese President Xi Jinping.
China’s Foreign Minister Wang Yi made the first official response to Mr Trump’s escalation.
“Slapping on tariffs is definitely not a constructive way to resolve economic and trade frictions, it’s not the correct way,” Mr Wang told a local Chinese television station on the sidelines of an Asean meeting in Bangkok which he is attending.
The levies – which would hit a wide swath of consumer goods, from mobile phones and laptop computers to toys and footwear - ended a temporary truce in a trade war that has disrupted global supply chains and roiled financial markets for more than a year.
“I think President Xi...wants to make a deal, but frankly, he’s not going fast enough,” Mr Trump said.
The US-China Business Council (USCBC) said that Mr Trump's new tariffs will not facilitate an agreement, but lead to more difficulties.
“We’re concerned that today’s action will drive the Chinese from the negotiating table, reducing hope raised by a second round of talks that ended this week in Shanghai,” council president Craig Allen said in a statement.
Mr Allen said it was “disconcerting that the additional tariffs were announced after learning yesterday that the talks were considered constructive", and that another meeting of negotiators would take place in Washington D.C. in early September.
“We’re concerned these additional tariffs will further erode our reputation as a reliable supplier, and our farmers, workers and consumers will suffer more,” said Mr Allen, adding that his organisation is also worried about potential retaliation from China.
“USCBC calls on both parties to refrain from the use of punitive tariffs and to resume talks without preconditions,” he said.
Mr Myron Brilliant, executive vice-president and head of international affairs at the US Chamber of Commerce, said in a statement that the new tariffs “will only inflict greater pain” on American businesses, farmers, workers and consumers, and undermine the US economy.
“We urge the two sides to recommit to achieving progress in the very near term before these new tariffs come into effect, and to remove all remaining tariffs as swiftly as possible,” Mr Brilliant said.
IMPACT ON MARKETS
News of the new tariffs hit US financial markets hard.
Oil prices plummeted 7 per cent, with Brent crude registering the biggest daily percentage drop since February 2016. The benchmark S&P 500, which had been in solidly positive territory on Thursday afternoon, closed down 0.9 per cent. Benchmark US Treasury yields also fell.
Retail associations predicted a spike in consumer prices.
Target tumbled 4.2 per cent, Macy’s fell 6 per cent and Nordstrom was down 6.2 per cent.
Moody’s predicted the new tariffs would weigh on the global economy at a time when growth is already slowing in US, China and the euro zone.
The tariffs may also force the Federal Reserve to again cut interest rates to protect the US economy from trade-policy risks, experts said.
Mr Trump announced the new tariffs in a series of tweets, faulting China for not stepping up to buy more US agricultural products and criticising Mr Xi for not doing more to stem sales of the synthetic opioid fentanyl.
“Trade talks are continuing, and during the talks the US will start, on September 1st, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country. This does not include the 250 Billion Dollars already Tariffed at 25%,” Mr Trump tweeted.
Asked about the impact on financial markets, he later told reporters: “I’m not concerned about that at all.”
He said the tariff rate could be increased in stages.
“The 10 per cent is for a short-term period and then I can always do much more or I can do less, depending on what happens with respect to a deal.”
Mr Trump’s decision came after Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin briefed him on their talks in Shanghai, a White House official said. It was the first face-to-face meeting with Chinese officials since Mr Trump and Mr Xi agreed to a trade ceasefire at a Group of 20 summit in June.
The Shanghai talks ended on Wednesday with little sign of progress, although both countries described the negotiations as constructive and scheduled another round of meetings in Washington in September.
Mr Trump had been pressing Mr Xi to crack down on a flood of fentanyl and fentanyl-related substances from China, which US officials say is the main source of a drug blamed for most of more than 28,000 synthetic opioid-related overdose deaths in the US in 2017.
Mr Xi had promised Mr Trump at a summit in Argentina in December that Beijing would take action. China had pledged that from May 1, it would expand the list of narcotics subject to state control to include the more than 1,400 known fentanyl analogues, which have a slightly different chemical make-up but are addictive and potentially deadly, as well as any new ones developed in the future.
Talks between the US and China collapsed in May, after US officials accused China of reneging on earlier commitments. The trade dispute escalated as Washington sharply hiked tariffs on US$200 billion worth of Chinese goods and Beijing retaliated.
Mr Trump subsequently threatened to impose 25 per cent sanctions on the remaining US$300 billion in Chinese imports, prompting warnings from Walmart and other major US retailers of a sharp spike in consumer prices. Thursday’s tweets indicated those goods would face a lower tariff rate than initially threatened, at least at first.
While the US bemoans the lack of larger Chinese agricultural purchases, Beijing has been pressing Washington to relax restrictions on sales to Chinese telecommunications giant Huawei as it had promised.
The US Department of Agriculture on Thursday confirmed private sales to China of 68,000 tonnes of soybeans in the week ended July 25.
The sale was the first to a private buyer since Beijing offered to exempt five crushers from the 25 per cent import tariffs imposed more than a year ago. Soybean futures opened lower on Thursday as traders shrugged off the small amount, and losses accelerated after Mr Trump’s tweets.
The new tariffs will jack up prices for consumers at the start of the back-to-school buying season, four large retail trade associations warned on Thursday.
“President Trump is, in effect, using American families as a hostage in his trade war negotiations,” said Mr Matt Priest, president of the Footwear Distributors and Retailers of America.
Mr Stephen Lamar, executive vice-president of the American Apparel & Footwear Association, said his group’s members were members were shocked that Mr Trump had not allowed the resumed US-China trade talks to proceed further before acting.
The measure will hit US consumers far harder than Chinese manufacturers, who produce 42 per cent of apparel and 69 per cent of footwear purchased in the US, Mr Lamar said.