Devastating trade spat with China far from over

FOREIGN TRADE

Businesses relying on Chinese products dealing with chaos

A worker takes a rest Friday at a factory making steel bike rims for export to U.S., in Hangzhou in east China’s Zhejiang province. CHINATOPIX VIA AP

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By Ana Swanson and Ben Casselman

New York Times

WASHINGTON >> President Donald Trump’s rapidly escalating trade war with China has resulted in eye-watering tariffs on products exchanged between the countries and scrambled prospects for many global businesses that depend on the trade. And there is no end in sight.

The Trump administration has been waiting for the Chinese leader, Xi Jinping, to call Trump personally, but Beijing appears wary of putting Xi in an unpredictable and potentially embarrassing situation with the U.S. president.

With the two governments at an impasse, businesses that rely on sourcing products from China — varying from hardware stores to toymakers — have been thrown into turmoil. The triple-digit tariff rates have forced many to halt shipments entirely.

Trump officials have argued that the status quo with China on trade is not sustainable. Trump has rapidly ratcheted up tariffs on Chinese products, from 54% on April 2 to 145% just one week later. The Chinese government has argued that the actions are unfair and closely matched his moves, raising its tariffs on American goods to 125% on Friday. But Friday night, the administration created a significant carve-out to its tariffs on China when it exempted some electronics, including smartphones, laptops and televisions. Those products will still be subject to other tariffs that Trump has put in place, like a 20% fee he added to Chinese goods in response to the country’s role in the fentanyl trade.

Trump has said he would like to speak with Xi, but he has stopped short of requesting a phone call, believing that it is the Chinese government’s turn to ask for such a call, according to people familiar with the matter. Trump officials say that dozens of countries have reached out to the administration about negotiations since the levies were imposed. China did not, and instead responded with harsh words and tariffs of its own.

Across the Trump administration, some officials are concerned that the trade war could soon escalate into a national security crisis, potentially causing the Chinese to move up plans for a military invasion of Taiwan.

The Pentagon is assessing the impact of China potentially cutting off rare earth exports to the United States and possibly blocking certain critical components used in U.S. weapons systems, according to a person with knowledge of the preparations. The aim is to fully ascertain what harm the Chinese could inflict on the United States’ ability to produce and maintain certain weapons and ammunition.

Trump continues to express optimism, saying that he has always gotten along with Xi and that “something positive” will come out of the relationship. But analysts have suggested that the situation may already have spiraled out of control.

Julian Evans-Pritchard, the head of China economics for research firm Capital Economics, said the fact that Chinese authorities had repeatedly matched U.S. tariff hikes suggested that they were in no rush to negotiate.

“A partial rollback of tariffs still seems likely at some point,” he said. “But it is hard to envisage a meaningful reset in the U.S.-China relationship.”

At a briefing Friday, Karoline Leavitt, the White House press secretary, declined to say whether the countries were in communication.

“I’m not going to comment on communications that are happening, or may not be happening, or either way, we’ll leave it to our national security team to get these discussions underway,” she said. She said the president was optimistic and that he had “made it very clear he’s open to a deal with China.”

Speaking last week at the White House, Trump said that “China wants to make a deal. They just don’t know how quite to go about it.” He added that the Chinese were “proud people.”

Trump’s moves have taken tariffs to a level far past what would be prohibitive for trade, creating crises for many American businesses that depend on imports from China.

Major multinational corporations have been in a better position to source products from countries besides China, but they too are reeling. Hobby Lobby, the crafting retailer, told vendors Thursday that it was delaying shipments from China as a result of the escalating trade war, according to correspondence viewed by The New York Times.

The retailer told vendors that the back-and-forth tariffs had resulted in “a rapidly shifting and unpredictable landscape” and that it hoped diplomacy between the United States and China would “yield a more stable and balanced outcome.”

The implications of disrupting business with one of the country’s biggest trading partners have ricocheted through the economy. The dollar fell to a three-year low Friday, while Treasury yields continued to swing. A measure of consumer sentiment also tumbled, indicating that Americans were becoming nervous about how higher tariffs might affect them.

Trump abruptly announced Wednesday a 90-day pause on the “reciprocal” tariffs that he had unveiled the previous week on countries around the world and that had gone into effect just hours earlier. But the threat of those tariffs, and of retaliation against U.S. exports, continues to hang over the global economy.