'Shocked' by Latest US Tariffs, Beijing Seeks Retaliatory Action

Lingling Wei

The Wall Street Journal

Biography
Lingling.Wei@wsj.com

July 11, 2018 8:52 a.m. ET

BEIJING—The U.S.’s plan to wallop China with new tariffs is putting Beijing in a bind, forcing it to retaliate in ways likely to cast doubt on its commitment to rules-based global trade.

The Trump administration’s announcement that it plans to clamp 10% tariffs on a further $200 billion in Chinese goods—from tech gear like routers to furniture and handbags—stoked anger and hand-wringing among Chinese officials on Wednesday. China doesn’t import enough from the U.S. to match Washington dollar for dollar as it has in previous rounds, so Beijing is reviewing plans to hit back in other ways, said Chinese officials familiar with the plans.

Measures being rolled out include holding up licenses for U.S. firms, delaying approval of mergers and acquisitions involving U.S. companies and ramping up inspections of American products at borders, the officials said. A Commerce Ministry statement on Wednesday described Beijing as “shocked” by the U.S. action and said China “has no choice but to take necessary countermeasures.” It didn’t elaborate.

Topping Out

China has matched U.S. tariffs dollar for dollar so far in their trade battle, but doesn't import enough to match tariffs on $200 billion in goods.

China imports from U.S.

U.S. imports from China

Tariffs imposed in 2018, cumulative

billion

$500

400

300

$200

Announced

July 10 by U.S.

200

100

$16 billion

Planned

$34 billion

July 6

’17

’16

’15

2014

’18*

$3 billion

March/April

*Through May

Sources: U.S. Census Bureau; staff reports

Behind the scenes, however, officials described the mood as more cautious. Senior Chinese officials are weighing how far to press the retaliation without hurting other national interests, according to the officials. The retaliatory measures are the kind of nontariff barriers that U.S. and European businesses have long complained about, and Beijing is actively courting allies in Europe and elsewhere to fight what officials call U.S. “trade bullying.”

China also needs the U.S. for more than just trade. “The U.S. is not China’s enemy as both countries face many common challenges,” said one of the officials, listing climate change, terrorism and other problems. And the tariff battle threatens to sap an already weakening Chinese economy.

In recent days, Vice Premier Hu Chunhua, who oversees foreign investment, has instructed local governments to gauge how the biggest round of U.S. tariffs to date—25% duties on $34 billion of Chinese goods imposed on Friday—is affecting American businesses operating in China, the officials said. In particular, authorities are looking for signs of U.S. companies potentially moving facilities out of China, the officials said. That would be a blow to Beijing’s effort to attract foreign capital and keep people employed at a time of gathering economic gloom.

Last week, Liu He, President Xi Jinping’s top economic envoy, instructed a group of prominent Chinese economists to hold a roundtable discussion on the impact of a trade war with the U.S. on the Chinese economy. Some of the economists, members of the China 50 Forum think tank that Mr. Liu founded, expressed concerns that the trade brawl could embolden state companies with a stake in the status quo to try to block market-opening reforms Beijing is planning, according to people briefed on the event.

Internationally, China is trying to project itself as a responsible trading partner, turning to the World Trade Organization for intervention in the dispute with the U.S. and ratcheting up efforts to enlist European countries for support. Premier Li Keqiang and German Chancellor Angela Merkel expressed a joint commitment to free trade in public comments during talks in Berlin this week.

On the sidelines of the meeting, German chemicals giant BASF SE got Chinese approval to build a $10 billion production site in the southern province of Guangdong. That would be BASF’s first wholly-owned plant in China, which last month detailed a plan to ease restrictions on foreign investments in the country. Requests for similar wholly-owned projects from BASF’s U.S. competitors, however, so far have been snubbed by Chinese authorities, according to one of the Chinese officials.

Beijing recognizes that it needs be careful with such favoritism, the officials said, and not turn the trade fight into an anti-U.S. crusade.

So far, authorities have avoided aggressively going after American businesses—or fanning nationalist sentiment to get the nation’s 1 billion-odd consumers to boycott American products. In the past, such tactics have been deployed against other countries embroiled in disputes, such as South Korea. Western nations have long urged Beijing to level the playing field for foreign companies in the country.

“The Chinese government understands that a full-scale trade war does more economic harm to China and would work hard to avoid it,” said Wang Tao, chief China economist at UBS Group AG.

Both Washington and Beijing have left the door open for talks aimed at a resolution of the dispute, though no negotiations are actively under way.

China renewed a request last week at the WTO for negotiations with the U.S., after the Trump administration went ahead with the tariffs on $34 billion in goods. The Commerce Ministry said Wednesday it would appeal to the U.S. via the WTO again with a complaint against the “U.S. side’s unilateralist actions.”

For some U.S. officials, China appears to lack the willingness to come up with solutions to the issues raised by Washington. The offers China has made so far—whether they are increasing purchases of U.S. products or the gradual opening of financial-services sectors—have failed to solve Washington’s demands for the deeper structural changes to create a more reciprocal trade relationship, people with knowledge of the previous rounds of negotiations said.

Mr. Liu, President Xi’s top economic adviser, proposed to buy nearly $70 billion of U.S. farm, energy and other products in negotiations in Beijing early last month. That smacked of managed trade to the U.S. side and wasn’t what the Trump administration had been seeking.

Instead, the U.S. has asked China to significantly lower tariffs and ease regulations and other barriers to imported goods. “The U.S. wants market access,” one of the people said. “The two sides just kept talking past each other.”

Write to Lingling Wei at lingling.wei@wsj.com

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