Trump threatens new Chinese Tariffs, rattling investors across markets

By guest authorsWilliam Mauldin and Vivian Salama from Wall Street Journal

Levies would extend to nearly all Chinese imports, potentially affecting American consumers

President Trump moved Thursday to extend tariffs to essentially all Chinese imports, escalating a trade conflict that is poised to hit U.S. consumers in the pocketbook and roiling financial markets.

The new tariffs would take effect Sept. 1 and cover USD 300 billion in Chinese goods—including smartphones, apparel, toys and other consumer products. They would come on top of tariffs already imposed on USD 250 billion in imports from China.

“If they do not want to trade with us anymore, that would be fine with me,” Mr. Trump said at the White House.

According to a person familiar with the situation, the tariff hike was opposed by U.S. Trade Representative Robert Lighthizer, Treasury Secretary Steven Mnuchin, White House economic adviser Lawrence Kudlow and national security adviser John Bolton. But, Mr. Trump was adamant in pushing the increase and was supported by White House adviser Peter Navarro, this person said. Jeff Emerson, spokesman for Mr. Lighthizer, said he “supports the president’s action.”

Wall Street was rattled by the news, with the Dow Jones Industrial Average erasing a rebound of more than 300 points. The index closed down 281 points, or 1.1 % lower. The S&P 500 slid 0.9 % and the technology-heavy Nasdaq Composite lost 0.8 %. Oil prices sank almost 8 %, their biggest drop since February 2015.

The U.S. action could prompt fresh retaliatory measures from Beijing, although there is also the possibility Mr. Trump could withdraw his threat before the new levies go into force.

Mr. Trump made public his plans to impose tariffs in a series of tweets that followed a briefing from his trade team on this week’s negotiations in Shanghai. Those talks ended with neither side detailing significant progress toward resolving the more-than-yearlong dispute.

Mr. Trump said that senior officials still planned to resume high-level discussions as scheduled next month, and he expressed his interest in reaching “a comprehensive Trade Deal” with China.

But, Mr. Trump chided President Xi Jinping of China for not following through on what the Trump administration views as prior commitments. “China agreed to…buy agricultural products from the U.S. in large quantities, but did not do so,” he wrote on Twitter. “Additionally, my friend President Xi said that he would stop the sale of Fentanyl to the United States—this never happened, and many Americans continue to die.”

An official at the Chinese Embassy in Washington did not respond to a request for comment.

The Wall Street Journal reported this week that the slow progress in trade talks was partly the result of a new tactic from Beijing, which increasingly thinks waiting may produce a more favourable agreement.

In the U.S., business groups condemned the escalation of tariffs.

“Tariffs are not the answer, escalation is not the answer,” said Myron Brilliant, head of international affairs at the U.S. Chamber of Commerce in Washington. “We have to be careful about actions undertaken by either government that would stir the pot and not create the best atmosphere for getting these complicated talks back on track.”

The tariffs, essentially a tax paid by importers in the U.S., affect practically all the groups of Chinese products not hit previously, with the exception of select categories, such as medicines.

Unlike previous rounds of tariffs, which have focused largely on industrial goods, the USD 300 billion tranche is set to include a host of consumer products, from electronics and cellphones to apparel.

The tariffs would affect about $45 billion in cellphones, $39 billion in laptops and tablets, and $5.4 billion in videogame consoles, according to the Consumer Technology Association, a trade group.

The tariff plans threaten to undermine U.S. sales of iPhones and other Apple products, which are largely produced in China. Apple would either have to eat the tariff costs on iPhones—which analysts have estimated would be about USD 40 on the import price of XS models—or pass those costs on to customers.

Apple’s business in China also faces risks from potential Chinese retaliation, trade experts and analysts said. The company, which has relied on China, Hong Kong and Taiwan for about a fifth of sales, would be a potential target for China because it had a nearly 6 % share of the Chinese smartphone market in the June quarter.

Shares of Apple fell 2.1 % Thursday, erasing a 2 % surge on Wednesday after the company reported it returned to sales growth in the three-month period ended June 29.

Dow Jones & Co., publisher of The Wall Street Journal, has a commercial agreement to supply news through Apple services.

The toy industry, which sources about 85 % of products from China, has been bracing for the tariffs, including moving manufacturing to places like Vietnam, Indonesia and Mexico and importing the goods into the U.S. sooner.

Hasbro Inc. has notified retailers that it plans to raise prices on any toys hit by tariffs and it also expects that retailers will take ownership of inventory in the U.S. instead of China, which will add to the toy maker’s shipping and warehousing costs, according to Chief Financial Officer Deborah Thomas.

Like Hasbro, Mattel, which makes Barbie dolls and Hot Wheels cars, is looking to reduce its manufacturing footprint in China. “We have put together a contingency plan and are working closer with retailers to make sure we mitigate the impact,” Mattel CEO Ynon Kreiz said in an interview last month. “There are different levers we can pull,” he said, including using manufacturers and vendors in other countries.

Toy makers may struggle to raise prices during the holiday season because they have already set prices with retailers, said Steve Pasierb, president of the Toy Association trade group, meaning that the tariffs will hit the manufacturers’ profits. A larger concern is that as prices rise for other consumer goods hit by tariffs, consumers may think twice about spending as much on discretionary purchases like toys.

“It’s a big concern because holiday spending power is important as we finish the year,” Mr. Pasierb said.

North Carolina entrepreneur Brett Portaro, who has developed a line of Powercharger Corp.-brand cellphone-charging accessories, said he was disappointed by the tariff news.

“For a new company like Powercharger, we can’t adjust our supply chain fast enough since almost all of the lithium-ion batteries used in our products are made in China,” he said.

Increasing Tariffs

The U.S. has steadily placed or proposed tariffs on most goods imported from China, excepting only a few items, including pharmaceuticals and some chemicals.

The tariffs plan is the latest move by Mr. Trump to put pressure on the Chinese side in hopes of winning concessions to help U.S. businesses and farmers. Previous warnings of additional tariffs have often been postponed, but three rounds eventually took effect. Economists say the trade conflict is souring investment and hurting economic growth in both countries.

Many Republican and Democratic lawmakers have backed Mr. Trump’s strategy of confronting Beijing as a necessary step to achieve structural changes in the Chinese economy.

“Tariffs aren’t the only solution President Trump should use to pressure China, but China isn’t making any friends in Congress with its behavior,” wrote Sen. Chuck Grassley (R., Iowa), the chairman of the Senate Finance Committee, in a tweet. “China has a responsibility to follow through on its commitments on fentanyl + ag purchases + trade talks.”

About three-quarters of Republican voters support tariffs on China without approval from the World Trade Organization, while about three-quarters of Democrats oppose them, according to a June survey from the University of Maryland.

One Democratic presidential candidate, Rep. Tulsi Gabbard of Hawaii, said in the primary debate on Wednesday that she would remove the tariffs if elected.

The latest round of tariffs, if imposed, is likely to generate more complaints from consumers and voters. On the other hand, Mr. Trump also faces potential criticism going into a presidential election year if he compromises deeply and cuts a deal with China, since Democrats and hawks in his own party have signaled they would criticize any perceived shortcomings.

The Trump administration appears to be aiming to alleviate consumer and business concerns by starting with tariffs of only 10 %, a move that also allows U.S. officials room to raise the tariff level in the future if China doesn’t follow through with concessions.

“The 10 % is for a short-term period and then I could always do much more or less, depending on what happens with respect to a deal,” Mr. Trump said.

Meanwhile, U.S. farmers are increasingly suffering from retaliation from China and other countries where the Trump administration has penalized trade. Farm products are also facing a disadvantage in Japan, which has opened its markets to other countries through the Trans-Pacific Partnership, a deal from which Mr. Trump withdrew.

After meeting Mr. Xi in Osaka, Japan, in June, Mr. Trump and administration officials said they had won commitments from Beijing to purchase more U.S. agricultural products. The administration is also seeking a quick trade agreement with Japan focused on agriculture.

But Beijing hasn’t said that it committed to the purchases, and Chinese firms have made only limited purchases of agricultural commodities in recent weeks.

The U.S. team in Shanghai this week, led by Mr. Lighthizer and Mr. Mnuchin, was hoping the Chinese side would commit to purchasing a defined quantity of U.S. agricultural goods, people following the talks said.

China is likely holding out on buying large amounts of U.S. farm goods while waiting for concessions from the U.S. side, the people said.

Mr. Trump has said his administration would take a softer approach on Chinese telecommunications giant Huawei Technologies Co., allowing firms to do business with the blacklisted company if it does not trigger security concerns.

So far, the Trump administration has not formalized licenses for U.S. firms to sell semiconductor chips and other products to Huawei. Administration officials are looking at a plan that would allow chip companies to sell to Huawei consumer products, such as cell phones, but not sell advanced chips to the company’s telecommunications infrastructure, which many U.S. officials view as a national-security threat.

NCTO supports President Trump’s announced plan to impose a 10 % tariff on USD 300 Billion of Chinese imports

The National Council of Textile Organizations (NCTO), representing the full spectrum of U.S. textiles from fiber through finished sewn products, welcomes President Trump’s announcement today that he will impose a 10% tariff on the remaining $300 billion of imports from China on September 1.

The U.S. textile industry has long supported the administration’s efforts to crack down on China’s abuse of intellectual property rights through the use of the Section 301 mechanism, while also calling on the administration to include finished apparel and home furnishings in any retaliatory tariffs against China.

Chinese imports of finished goods into the U.S. market, which have had the most significant impact and disruption on domestic textile and apparel production, investment and jobs, will finally be included in the administration’s retaliatory tariffs.

“China’s rampant abuse of intellectual property rights and IP theft has gone on far too long at the direct expense of the U.S. textile industry and its supply chain, resulting in the loss of U.S. manufacturing jobs in this critical sector,” said NCTO President and CEO Kim Glas.

“We have long encouraged the administration to include finished products on the tariff list, given China’s rampant intellectual property abuses and the significant impact it has had on our sector.”

Underscoring the penetration by China into the U.S. market, finished apparel, home furnishings and other made-up textile goods equate to 93.5 percent of U.S. imports from China in our sector, while fiber, yarn and fabric imports from China only represent 6.5 percent.

“We believe this move will lead to more re-shoring of production to the United States and the Western Hemisphere production platform—and will also address and mitigate China’s rampant trade distortions,” Glas said.

While we support the inclusion of finished products in Tranche 4 of the retaliatory tariffs, our industry has very serious concerns that certain inputs already vetted by the administration and removed from previous retaliatory tariff lists are on this list. These inputs include but are not limited to: machinery, dyes and chemicals and textile components not available domestically, like rayon staple fibre.

Lastly, we are continuing to urge the administration to apply the 301 retaliatory tariffs to de minimis shipments below $800, which are not currently subject to the tariffs. The administration should close this substantial loophole as part of its efforts to address China’s unfair trade practices.

NCTO is a Washington, DC-based trade association that represents domestic textile manufacturers, including artificial and synthetic filament and fibre producers. 

•             U.S. employment in the textile supply chain was 594,147 in 2018. 

•             The value of shipments for U.S. textiles and apparel was $76.8 billion in 2018. 

•             U.S. exports of fiber, textiles and apparel were $30.1 billion in 2018. 

•             Capital expenditures for textile and apparel production totaled $2.0 billion in 2017, the last year for which data is available.

U.S. Retailers respond to Administration’s latest tariff escalation

Caption courtesy by NRF

The U.S. National Retail Federation on August 1, 2019, issued the following statement from Senior Vice President for Government Relations David French in response to the Trump administration’s plans to impose a 10 percent tariff on USD 300 billion worth of goods imported from China beginning September 1.

“As we’ve said repeatedly, we support the administration’s goal of restructuring the U.S.-China trade relationship. But, we are disappointed the administration is doubling-down on a flawed tariff strategy that is already slowing U.S. economic growth, creating uncertainty and discouraging investment. These additional tariffs will only threaten U.S. jobs and raise costs for American families on everyday goods.

“The tariffs imposed over the past year have not worked, and there’s no evidence another tax increase on American businesses and consumers will yield new results. We urge the administration to bring our allies to the table and find new tools beyond tariffs to achieve better trade relations.” 

The National Retail Federation, the world’s largest retail trade association, passionately advocates for the people, brands, policies and ideas that help retail thrive. From its headquarters in Washington, D.C., NRF empowers the industry that powers the economy. Retail is the nation’s largest private-sector employer, contributing USD 2.6 trillion to annual GDP and supporting one in four U.S. jobs — 42 million working Americans. For over a century, NRF has been a voice for every retailer and every retail job, educating, inspiring and communicating the powerful impact retail has on local communities and global economies.