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Trump raises tariffs on Chinese goods as trade war escalates

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President
Donald Trump angrily escalated his trade fight with China on Friday, raising
retaliatory tariffs and ordering American companies to consider alternatives to
doing business there.

He also
blamed Jerome Powell, the man he appointed as chairman of the Federal Reserve,
for the state of the domestic economy, wondering who was a “bigger
enemy” of the U.S.  Powell or Chinese President Xi
Jinping.

Even by the
turbulent standards of the Trump presidency, his actions, all done
via Twitter, were notable, sending markets sharply lower and adding to a sense
of uncertainty on the eve of his trip to France for a meeting of global
economic powers.

Trump’s move
came after Beijing announced Friday morning that it had raised taxes on U.S.
products. He huddled with advisers, firing off tweets that attacked China and
the Fed. And he mockingly attributed a Wall Street drop of 573 points to the
withdrawal of a marginal candidate from the Democratic presidential race. The
Dow Jones average eventually closed down 623 points.

The
president attacked the Fed for not lowering rates at an informal gathering in
Jackson Hole, Wyoming, where no such action was under consideration. Powell,
speaking to central bankers, gave vague assurances that the Fed would act to
sustain the nation’s economic expansion, but noted that the central bank had
limited tools to deal with damage from the trade dispute.

Trump said
he would be raising planned tariffs on $300 billion in Chinese goods from 10%
to 15%. The Office of the U.S. Trade Representative also said existing tariffs
on another $250 billion in Chinese imports would go from 25% to 30% on Oct. 1
after receiving feedback from the public.

Late Friday
night, Trump told reporters at the White House: “I have no choice. We’re
not going to lose close to a trillion dollars a year to China.”

He insisted:
“Tariffs are working out very well for us. People don’t understand that
yet.”

The impact
could be sweeping for consumers.

“With
each percentage point added to the tariff hikes, it becomes more and more
difficult for importers not to pass the costs on to the U.S. consumer,”
said Wendy Cutler, a former U.S. trade negotiator now at the Asia Society
Policy Institute.  “And this is not to mention the uncertainty that
these increases contribute to the overall business environment.”

Trump acted
hours after Beijing said it would hike tariffs on $75 billion in U.S. imports,
a move some economists fear could tip a fragile global economy into recession.

The
president appeared caught off-guard by China’s tariff increase, and was angry
when he gathered with his trade team in the Oval Office before departing for
France, according to two people familiar with the meeting who spoke to The
Associated Press on condition of anonymity because they were not authorized to
disclose closed-door conversations.

Administration
officials, including U.S. Trade Representative Robert Lighthizer and adviser
Peter Navarro, discussed potential retaliatory options. Treasury Secretary
Steve Mnuchin, returning from vacation, joined by phone.

Earlier
Friday, the president said he “hereby ordered” U.S. companies to seek
alternatives to doing business in China. The White House did not cite what
authority the president could use to force private businesses to change their
practices.

Trump’s
latest escalation will impose a burden on many American households. Even before
he announced an increase Friday, J.P. Morgan had estimated that Trump’s tariffs
would cost the average household roughly $1,000 a year if he proceeded with his
threats.

Businesses
large and small joined in a chorus of opposition to the intensifying
hostilities.

“It’s
impossible for businesses to plan for the future in this type of
environment,” said David French, senior vice president of government
relations at the National Retail Federation. “The administration’s
approach clearly isn’t working, and the answer isn’t more taxes on American
businesses and consumers. Where does this end?”

If Trump
goes ahead with all the tariffs he’s announced, they would cover just about
everything China ships to the United States.

China, for
its part, slapped new tariffs of 5% and 10% on $75 billion of U.S. products in
retaliation. Like Trump’s, the Chinese tariffs will be imposed in two batches first
on Sept. 1 and then on Dec. 15.

China will
also go ahead with previously postponed import duties on U.S.-made autos and
auto parts, the Finance Ministry announced.

Trump tweets
Friday included one declaring, “Our great American companies are hereby
ordered to immediately start looking for an alternative to China, including
bringing … your companies HOME and making your products in the USA.”

French, at
the National Retail Federation, said it was “unrealistic for American
retailers to move out of the world’s second largest economy. … Our presence
in China allows us to reach Chinese customers and develop overseas
markets.”

The
13-month-long feud between the U.S. and China has been rattling financial
markets, disrupting international trade and weakening prospects for worldwide
economic growth.

Washington
accuses China of using predatory tactics – including outright theft of U.S.
trade secrets – in an aggressive drive to turn itself into a world leader in
cutting-edge technologies such as artificial intelligence and electric cars.

Twelve
rounds of talks have failed to break the impasse, though more negotiations are
expected next month. Chinese leaders have offered to alter details of their
policies but are resisting any deal that would require them to give up their
aspirations to become a technological powerhouse.

The two
countries are also deadlocked over how to enforce any agreement.

China’s
announced tariff hikes   and Trump’s response   are the latest signs
that both countries are digging in.

“China
is signalling yet again that it has no intention of backing off from the trade
war, further reducing the likelihood of the U.S. and China agreeing on any sort
of trade deal in the coming months,” said Cornell University economist
Eswar Prasad, former head of the China division at the International Monetary
Fund.

Tariff
increases on Sept. 1 apply to 1,700 items ranging from frozen sweet corn, dried
beef and pork liver to marble, other building materials and bicycle tires,
according to the Chinese Finance Ministry.

Penalties
that take effect Dec. 15 cover 3,300 items including coffee, cinnamon,
industrial chemicals and scissors, the ministry said.

Most of the
goods are being hit for a second time, possibly reflecting Beijing’s reluctance
to hurt its own economy by extending penalties to imports needed by its own
industries, according Mark Williams of Capital Economics. He said only $11 billion
of the $75 billion of goods on the Chinese lists are being hit with penalties
for the first time.

Williams
noted aircraft and integrated circuits   an important input for Chinese
industry   still are exempt from retaliation.

That
reflects “a desire to limit the damage that tariffs on U.S. goods could do
to its own economy,” said Williams in a report.

The Chinese
said tariffs of 25% and 5% would be imposed on U.S.-made autos and auto parts
on Dec. 15. Beijing had planned those tariff hikes last year but temporarily
dropped them to keep the talks going.

BMW, Tesla,
Ford and Mercedes-Benz are likely to be the hardest hit by the Chinese auto
tariffs. In 2018, BMW exported about 87,000 luxury SUVs to China from a plant
near Spartanburg, S.C. It exports more vehicles to China than any other U.S.
auto plant.

Together,
Ford, BMW, Mercedes and others exported about 164,000 vehicles to China from
the U.S. in 2018, according to the Center for Automotive Research, a think tank
in Ann Arbor, Michigan. Most of them are luxury cars and SUVs with higher
profit margins that can cover higher U.S. wages. The exports are down from
about 262,000 in 2017.

Tesla, which is building a plant in China, last year got about 12% of its revenue by exporting about 14,300 electric cars and SUVs from California to China, according to Barclays. Most of Ford’s exports are from the Lincoln luxury brand, but most of the vehicles it sells in China are made in joint-venture factories.

Source: AP

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