The specter of a trade war between the U.S. and China intensified March 22 as President Donald Trump unveiled plans to impose tariffs on up to $60 billion of Chinese imports and China threatened to retaliate.
Trump signed a memorandum at a White House ceremony, imposing tariffs on billions of dollars of Chinese imports to combat what the administration called China's "economic aggression" that costs the U.S. hundreds of billions of dollars each year.
The U.S. president said his administration will propose adding an additional 25% tariffs on certain Chinese imports on sectors, including aerospace, information communication technology and machinery, as the result of a monthslong U.S. investigation into forced technology transfers and other "unfair" trade practices by China.
Calling it a "reciprocal" tariff, Trump also said he asked China to "immediately" reduce its goods trade deficit with the U.S. by $100 billion, which was $375.2 billion in 2017.
"If they charge us, we charge them the same thing," Trump said. "That's the way it's gotta be. That's not the way it is."
China responded swiftly.
According to a report by Chinese state-run media outlet Xinhua, an unnamed Chinese Ministry of Commerce official said, "China will absolutely not sit back watching its rights and interests be damaged" and that the country will "take all necessary measures" in retaliation.
Two senior White House officials earlier in the day told reporters that the administration would recommend tariffs on up to $50 billion in Chinese imports annually, but Trump said during the memorandum signing that it "could be" up to $60 billion.
Trump directed the U.S. Office of the Trade Representative, or USTR, to publish a proposed list of products and any tariff increases within 15 days of the announcement, or April 6. Following a public comment period, U.S. Trade Representative Robert Lighthizer will publish the final list of products and tariff increases.
Lighthizer said at a Senate Finance Committee hearing before the announcement that he would consider adding maritime equipment, modern rail transportation equipment, new energy vehicles equipment, advanced medical products and agricultural equipment to the tariff list.
Trump has also instructed the USTR to file a case at the World Trade Organization against China's "discriminatory" technology licensing practices, the agency said in a news release. Treasury Secretary Steven Mnuchin will also look into investment restrictions on Chinese companies. Both Lighthizer and Mnuchin will provide reports to Trump within 60 days on those two actions, the memorandum states.
"It's out of control," Trump said of the trade deficit with China. "We have a tremendous intellectual property theft situation going on."
Trump's action against China stirred fears that the tariffs could stoke a trade war and spur retaliatory action against U.S. exports.
News of the tariffs rattled markets. The S&P 500 closed down 2.52% at 2,643.69, and the Nasdaq fell 2.43% to finish at 7166.68. The yield on 10-year Treasury notes bottomed out at 2.798% before climbing back to 2.819%; the yield had reached 2.928% on March 21.
Although Trump hit China with tariffs on billions of dollars in imported goods, he pulled back on another set of tariffs, giving the European Union and a handful of other countries a temporary exemption from steel and aluminum tariffs set to take effect March 23.
Perhaps an offset to the rising friction over trade with China, the administration gave the EU, Australia, Argentina, Brazil and South Korea temporary exemptions from Trump's 25% tariff on U.S. steel imports and 10% tariff on aluminum imports, which are set to take effect March 23, Lighthizer told lawmakers at a hearing March 22. Those countries now join Canada and Mexico, both of which received temporary exemptions earlier.
The announcement on tariffs against China was immediately met with concern from retailers, who have previously written letters to the president warning of what they say could mean increased production and consumer costs for an industry that largely imports from the Asian nation.
Hun Quach, vice president of international trade for the Retail Industry Leaders Association, said retailers support holding China accountable for intellectual property theft but that tariffs would be damaging if they end up targeting everyday consumer products.
"There is no way to impose $50 billion in tariffs on Chinese imports without it having a negative impact on American consumers," Quach said. "Make no mistake, these tariffs may be aimed at China, but the bill will be charged to American consumers who will pay more at the checkout for the items they shop for every day."
"Holding China accountable for refusing to follow global trading rules is important and necessary, but instead, the tariffs proposed by the administration will punish ordinary Americans for China's violations," National Retail Federation CEO Matthew Shay said in a news release.
At least one high-ranking Republican also expressed concern that consumers could pay the price for the tariffs.
"While I commend the administration for taking much-needed action toward China, I am concerned with their approach on tariffs," Senate Finance Chairman Orrin Hatch, R-Utah, said in a statement. "Hitting billions in goods with tariffs runs the risk of putting a bigger dent in the pocketbooks of American families across the country."
The USTR on March 22 published its final report from the Section 301 investigation launched in August 2017. The agency said in the report that China uses foreign ownership restrictions to pressure technology transfers from U.S. companies to Chinese firms and also conducts cyber thefts with the goal of stealing intellectual property and trade secrets. China imposes restrictions on U.S. firms through technology licensing terms restrictions and the acquisition of U.S. companies by Chinese companies in order to gain their intellectual property, the report added.