President Trump considers hiking proposed tariffs on $200 billion in Chinese goods to 25 percent-Sino-US

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President Trump considers hiking proposed tariffs on $200 billion in Chinese goods to 25 percent

Shipping containers are seen on a cargo vessel at the Dachan Bay Terminals in Shenzhen, Guangdong province, China July 12, 2018. Photo: Reuters

US President Donald Trump has told his top trade official to consider raising proposed tariffs on $200 billion in Chinese goods to 25 percent from the 10 percent rate his administration is currently mulling, the administration announced on Wednesday.

The president's direction to US Trade Representative Robert Lighthizer comes as the White House tries to use duties, among other tools, to push China to abandon alleged unfair practices and reach a potential new trade deal. Trump aims to balance a desire to force Beijing to the negotiating table with efforts to avoid escalation in a potentially devastating trade war.

Lighthizer said that Trump directed the increase from a previously proposed 10 percent duty because China has refused to meet US demands and has imposed retaliatory tariffs on US goods.

"The increase in the possible rate of the additional duty is intended to provide the administration with additional options to encourage China to change its harmful policies and behavior and adopt policies that will lead to fairer markets and prosperity for all of our citizens," Lighthizer said in a statement.

"The 25 percent duty would be applied to the proposed list of products previously announced on July 10," Lighthizer said in the statement. "The Trump Administration continues to urge China to stop its unfair practices, open its market, and engage in true market competition. We have been very clear about the specific changes China should undertake. Regrettably, instead of changing its harmful behavior, China has illegally retaliated against US workers, farmers, ranchers and businesses."

The effort to further punish China is being led by hard-line advisers to Trump, who believe inflicting painful measures on Beijing is the best way to force it back to the negotiating table on trade. But that approach is once again creating fissures within Trump's own team, with his Treasury Secretary Steven Mnuchin adamantly opposed to ratcheting up the tariffs and Peter Navarro, a key trade adviser, advocating the higher duties, people with knowledge of the discussions said. Stephen K. Bannon, who left the White House last August, has also been counseling the president to pursue tougher tariffs, according to people familiar with his thinking.

There have been no formal talks between Washington and Beijing for weeks over Trump's demands that China make fundamental changes to its policies on intellectual property protection, technology transfers and subsidies for high technology industries.

Two Trump administration officials told reporters on a conference call that Trump remains open to communications with Beijing and that through informal conversations the two countries are discussing whether a "fruitful negotiation" is possible "We don't have anything to announce today about a specific event, or a specific round of discussions, but communication remains open and we are trying to figure out whether the conditions present themselves for a specific engagement between the two sides," one of the officials said.

The Trump administration will extend the public comment period on the tariff proposal to September 5, from the currently planned August 30, to allow feedback on what tariff rate the White House should impose. The trade representative has not made a final decision on whether to impose the duties.

The White House's original move last month to target $200 billion in Chinese goods came just days after Beijing retaliated against the administration's imposition of 25 percent tariffs on $34 billion in goods. The Trump administration is currently considering whether to put duties on an additional $16 billion in goods, but that review is ongoing, an official said Wednesday.

Trump, in an interview with CNBC, threatened to impose tariffs on all $505 billion in Chinese goods imported to the United States if Beijing does not make trade concessions.

Derek Scissors, a China scholar with the American Enterprise Institute in Washington, said a 25 percent tariff rate would be more effective in keeping out Chinese goods from US markets from.

He said that the Chinese government could more easily offset a 10 percent tariff with subsidies or by weakening China's yuan currency. The yuan has already weakened by about 7 percent against the dollar since the beginning of May, prompting US Treasury Secretary Steven Mnuchin to tell Reuters recently that he is concerned that Beijing may be manipulating its currency.

"If we're going to use tariffs, this gives us more flexibility and it's a more meaningful threat to say that you might go to 25 percent on $200 billion of Chinese goods," said Scissors, adding that Trump's pressure strategy will not work if he does not resolve trade disputes with US allies such as the European Union, Mexico and Canada.

But the move drew swift condemnation from US business lobby groups worried that tit-for-tat tariffs would start to hamper economic growth.

"Escalating tariffs against China is the wrong approach to address legitimate concerns US businesses have with China's harmful practices," said Myron Brilliant, head of international affairs for the US Chamber of Commerce.

"Each tariff escalation leads to further retaliatory action from China – ultimately inflicting even more harm on American businesses, workers, farmers, ranchers, and consumers."

China said on Wednesday that "blackmail" would not work and that it would hit back if the United States takes further steps hindering trade, including applying the higher tariff rate.

"China's position is firm and clear: Pressure and blackmail from the US won't work," Geng Shuang, a spokesman for the Chinese Foreign Ministry, said at a briefing on Wednesday in Beijing in response to reports about the 25 percent tariffs. "If the US takes a further and upgraded move, China would definitely retaliate to safeguard our legal rights."

Inflation factor

Implementing the tariffs would complicate the Federal Reserve's decision-making on interest rates. Omair Sharif, an economist at Societe Generale in New York, said that a 25 percent tariff on the entire $200 billion product list could cause inflation to surge by 1.1 percentage point. Assuming the levies get passed along to customers, the annual increase in the consumer price index, excluding food and energy, would jump to 3.4 percent from the current rate of 2.3 percent, he said in a research note on Wednesday.

The Institute for Supply Management's latest survey released on Wednesday indicated that US companies are already mulling significant investment changes. While manufacturers are experiencing healthy demand in the United States, they are considering expanding outside the country to avoid tariffs, Timothy Fiore, chairman of the ISM manufacturing survey, said on a conference call with reporters.

Senators seek tariff limits

Trump also got more pushback on his tariff plans from the US Congress on Wednesday as a bipartisan group of senators, led by Republican Rob Portman of Ohio, launched new legislation that would scale back the president's power to impose tariffs for national security reasons under a Cold War-era trade law.

The proposal would require a more robust justification from the Department of Defense for "Section 232" tariffs such as those imposed on steel and aluminum imports and those now under consideration for autos. It would also give Congress more oversight of the process.

The move signals displeasure among Trump's own party over his protectionist actions, but chances of it becoming law are slim as Congress would likely need to override a presidential veto by Trump.

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