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White House piles pressure on China after Trump tariff threat

White House piles pressure on China after Trump tariff threat

By David Lawder and Michael Martina

WASHINGTON/BEIJING (Reuters) - China has underestimated U.S. President Donald Trump's resolve to impose more tariffs unless it changes its "predatory" trade practices, a White House trade adviser said on Tuesday, as Trump greatly expanded the amount of Chinese imports possibly facing new duties.

The growing trade conflict hit financial markets hard, with Beijing accusing the United States of "extreme pressure and blackmailing" and vowing to retaliate. With both sides upping the ante, the risks of a damaging trade war grew dramatically.

Trump threatened on Monday to hit $200 billion (£151.8 billion) of Chinese imports with 10 percent tariffs if Beijing retaliated against his previous targeting of $50 billion in imports, aimed at pressuring China to stop stealing U.S. intellectual property.

He also threatened tariffs on another $200 billion of Chinese products should Beijing hit back again, bringing to $450 billion the potential amount of Chinese exports that could be targeted. That sum approaches the roughly $500 billion in total annual Chinese exports to the United States.

White House trade adviser Peter Navarro, who views China as a hostile economic and military power, said Beijing had more to lose from a trade war. China imported $129.89 billion of U.S. goods last year, while the United States purchased $505.47 billion of Chinese products, according to U.S. data.

"The fundamental reality is that talk is cheap," Navarro told reporters on a conference call, saying China "may have underestimated the strong resolve of President Donald J. Trump."

"If they thought that they could buy us off cheap with a few extra products sold and allow them to continue to steal our intellectual property and crown jewels, that was a miscalculation," Navarro said, referring to now-abandoned talks in which Beijing had offered to purchase more U.S. products.

The trade confrontation pits the world's two largest economies against each other and could disrupt global supply chains for the tech and auto industries, sectors heavily reliant on outsourced components.

Trump's trade strategy toward China sent global stock markets skidding and weakened both the dollar and the Chinese yuan on Tuesday. Shanghai stocks plunged to two-year lows. The Dow Jones Industrial Average <.DJI> shed 1.15 percent and gave up all of its 2018 gains. The S&P 500 <.SPX> dropped 0.4 percent.

Yields on safe-haven U.S. Treasuries narrowed. Agricultural commodities, which have been targeted by China, fell sharply, chief among them soybeans, which fell to their lowest level on spot markets since December 2007.

China's commerce ministry said Beijing will fight back with "qualitative" and "quantitative" measures if the United States publishes an additional list of tariffs on Chinese goods.

"The United States has initiated a trade war and violated market regulations, and is harming the interests of not just the people of China and the U.S., but of the world," the ministry said in a statement.

Trump has raised trade tensions on other fronts as well. He slapped tariffs on steel and aluminium from Canada, Mexico and the European Union, threatened to kill the North American Free Trade Agreement and is studying new tariffs on car imports.

Economists complain that Trump's efforts to reduce America's deficit are misguided, saying the gap in trade with China reflects the underlying economy. Some believe Trump is bluffing, contrary to Navarro's comments.

'SUICIDE PACT'

Goldman Sachs <GS.N> Chief Executive Lloyd Blankfein said Trump's approach to China on trade may be "bluster."

"I don't know that we're in a suicide pact on this. I suspect that we are not going to cause the economies to collapse," Blankfein added.

Investment bank JPMorgan estimated in a report on Tuesday that Trump's tariffs on China would have only modest effects on the broader U.S. economy.

It based its analysis on a 12 percent average U.S. tariff on $450 billion of imports from China, estimating that this would add just 0.4 percentage points to U.S. consumer price inflation if the additional costs of the duties were passed on to consumers in their entirety.

Also caught in the crossfire was Chinese telecoms company ZTE Corp, <0763.HK> <000063.SZ> whose rescue by Trump in a deal with Chinese President Xi Jinping appeared in doubt after a U.S. Senate vote on Monday.

U.S. business groups said members were bracing for a backlash affecting all American firms in China, not just in sectors facing tariffs. Jacob Parker, vice president of China operations at the U.S.-China Business Council in Beijing, said some companies have reported Beijing is meeting with Chinese businesses to discuss shifting contracts for U.S. goods and services to suppliers from Europe or Japan, or to local Chinese firms.

Beijing has mounted campaigns against Japanese and South Korean companies in the past after diplomatic disputes.

The intensifying trade dispute threatens to put more pressure on the already cooling Chinese economy.

Even with tariffs on an additional $200 billion in Chinese goods, the impact on both China's and the U.S. economy is set to be small, most economists say. The risk of contagion comes from financial markets, they believe, as sharp selloffs could hit consumer and business confidence.

(Reporting by David Lawder in WASHINGTON and Michael Martina and Ben Blanchard in BEIJING; Additional reporting by Lee Chyen Yee in SINGAPORE and Jeff Mason in WASHINGTON; Editing by Kim Coghill and Will Dunham)