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China warns it can hurt big Dow-listed U.S. firms in a trade war

Trump threatens even further tariffs on Chinese goods

Just this Monday U.S. president Trump threatened to put 10 percent tariffs on $200 billion of Chinese products if China were to follow through on the threat to retaliate against his earlier targeting of $50 billion in Chinese imports with tariffs.

The threats are beginning to have a negative effect on stocks in the Dow Jones index (DJI). It closed down 0.17 percent on Wednesday. For the year now the index has declined 0.25. However, the Chinese Shanghai Composite Index has declined even more this year, 13.1 percent.

China may retaliate further

In a commentary, Global Times said: “If Trump continues to escalate trade tensions with China, we cannot rule out the possibility that China will strike back by adopting a hard-line approach targeting Dow Jones index giants.”

There were three rounds of high level talks between the world’s two largest economies since early May but they failed to reach a compromise. The U.S. complains about Chinese trade practices and the $375 billion trade deficit it has with China.

Chinese commerce minister, Gao Feng, on Thursday said that although previous trade talks with the US were constructive the U.S. was now acting capriciously over bilateral trade issues. He warned that the interest of US workers and farmers would in the end be hurt by the Trump policy of brandishing “big sticks”.

The U.S. has accused China of stealing intellectual property from the US, a charge that the Chinese deny: “Washington’s accusations of forced tech transfers are a distortion of reality, and China is fully prepared to respond with “quantitative” and “qualitative” tools if the U.S. releases a new list of tariffs, Gao told a regular briefing in Beijing.”

In response to Washington’s decision to levy tariffs on $50 billion of Chinese goods China plans to impose additional tariffs on 659 U.S. products. Duties on 545 of the goods is to start on July 6. These tariffs are in addition to tariffs already imposed on 128 U.S. goods including pork, fruits, and nuts a response to Trump’s earlier imposition of tariffs on Chinese steel and aluminum. The goods to be affected on July 6 include also pork, fruit, but soybeans, autos and many marine products.

China remains committed to opening up its markets

Even as China takes measures in retaliation against US tariffs the tabloid insists the country is committed to reform and opening up its markets saying: “Beijing will further open up China’s financial markets to the world, a move that may draw funds from U.S. stock markets as global investors increasingly add Chinese stocks to their portfolios.Those measures may further knock down U.S. stock prices.”

China has said that it is willing to boost imports and widen market access. In April this year, Chinese president Xi Jinping said at a high profile Chinese forum that import tariffs on goods such as cars would be cut. In May, China promised it would lower import tariffs on 1,449 consumer goods beginning on the first of July this year. On Thursday Xi told a group of foreign executives in the capital Beijing that he had been keeping his promises.

Xi said that countries should not fight among themselves but cooperate to meet challenges together and warned that the last financial crisis was not that long ago. Xi said: “We still have vivid memories of what happened during the financial crisis and we are not yet fully recovered. We must also stay vigilant because, as economic growth still lacks momentum, we have seen a surge of trade protectionism, isolationism and populism.”

Gao warned that a trade war between China and the U.S. could disrupt global supply lines for the tech and auto industry and derail world growth. This would ultimately harm the interest of U.S. companies, workers, and farmers, Gao warned.

While the tariffs may be temporary and an attempt to force China to come to an agreement more favorable to the US the tactic could backfire. The tariffs could end up hurting farmers many of whom may support Trump. U.S. farmers export huge amounts of soybeans to China. However, in response to the tariff threats China has ordered its farmers to plant more soybeans. It is also planning to import more soybeans from other countries such as Canada. U.S. farmers may find that even if the tariffs are eventually removed by China their markets are mostly evaporated as China relies more on its own production and other countries than the U.S. for imports.

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