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Trump pushes back on fears of a trade war with China

China retaliates over the Trump administration's plans to slap tariffs on $50 billion in Chinese goods, unveiling a list of similar potential duties on key U.S. imports. Ryan Brooks reports. (Video: Reuters)

President Trump showed no sign Wednesday of backing down from an escalating trade confrontation with China, even as financial markets wobbled and American farmers and manufacturers warned that he was inviting a damaging commercial clash.

Hours after the Chinese government announced plans to match the president’s tariffs on $50 billion in imported Chinese goods with import levies on U.S. soybeans, cars and airplanes, Trump fired off a bellicose tweet.

“When you’re already $500 Billion DOWN, you can’t lose!” the president wrote, in reference to the 2016 U.S. deficit in goods and services trade.

Other administration officials hinted that the trade dispute ultimately may be settled at the bargaining table.

On April 3, President Trump alleged China forged a $500 billion trade deficit with the U.S., just days after the two countries hit each other with tariffs. (Video: The Washington Post, Photo: Jabin Botsford/The Washington Post)

Commerce Secretary Wilbur Ross called the investor reaction overblown and signaled that the administration may seek to resolve the trade dispute through diplomacy. “Even shooting wars end with negotiations,” Ross told CNBC. “So it wouldn’t be surprising at all if the net outcome of all this is some sort of negotiation, whether it happens by May or some other time, that’s another whole question.”

But Wall Street was rattled by the exchange of blows between the world’s two largest economies. The Dow Jones industrial average fell more than 500 points in early trading before rebounding and closing up more than 230 points, or nearly 1 percent. Soybean prices plunged more than 5 percent as traders grappled with the possible closure of a market that bought roughly half of U.S. exports of the commodity last year.

Farm groups Wednesday joined the U.S. Chamber of Commerce and the National Association of Manufacturers in opposing the president’s reliance on tariffs as a tool to change Chinese industrial policies. The administration wants China to stop forcing U.S. companies to share their technology with Chinese partners, using cybertheft to gain trade secrets, and acquiring U.S. high-tech companies in the open market.

Former senator Max Baucus, who co-chairs Farmers for Free Trade, said the Chinese tariffs will hurt “harvesters, processors, truck drivers, rail workers, and main street businesses that rely on a strong agricultural economy” along with farmers.

“We urge the administration to reconsider escalating this trade war,” said Baucus, who represented Montana in the Senate and later served as President Barack Obama’s ambassador to China.

Once imposed, the Chinese measures are not expected to have a significant impact on the broader U.S. economy. “In isolation, 25 percent tariffs on $50 billion of goods is not a big deal from a macro perspective — [it] adds less than 0.1 percent to the cost structure of the economy,” said economist Jim O’Sullivan of High-Frequency Economics. “The issue is whether there is retaliation to the retaliation and so on.”

Business groups such as the National Association of Manufacturers have urged the administration to pursue negotiations rather than swap tariff hikes with the Chinese. Robert E. Lighthizer, the U.S. trade representative, negotiated such accords with Japan in the 1980s as a Reagan administration official.

Treasury Secretary Steven Mnuchin said late last month that he was “hopeful” the sides could hammer out an accommodation on trade. But U.S. officials have disclosed no plans for formal talks, and a spokesman for Mnuchin did not respond to telephone and email requests for comment.

“We hope now that the two sides can avoid further escalation and get to the table to try to negotiate something,” said Rufus Yerxa, president of the National Foreign Trade Council, which represents companies such as General Motors and Walmart. “Our fear is this is not a great environment to compromise and do what a negotiation requires.”

Hopes that a diplomatic resolution can avert a full-blown trade war are clouded by doubts over the administration’s strategy and goals.

“The lack of a clear end game heightens the risk that this conflict could escalate,” said Eswar Prasad, former head of the International Monetary Fund’s China division. “This is going to get a lot uglier before it gets any better.”

Trump targets $50 billion in Chinese electronics, aerospace with tariffs

Trump is threatening to impose tariffs unless China abandons a host of policies aimed at vacuuming up American technology, including foreign ownership restrictions, state-backed investments in Silicon Valley and ­cybertheft.

U.S. Trade Representative officials say those structural pillars of China’s state-led economy put U.S. companies at a disadvantage in the Chinese market and erode the United States’s global technology lead.

But the president remains fixated on shrinking the $375 billion deficit in U.S. goods trade with China, which he asked Chinese officials last month to narrow by $100 billion. The U.S. trade gap with China is “the largest deficit of any country in the history of our world,” the president complained last month while previewing his tariff offensive.

“The U.S. has perhaps mis-messaged the whole exercise by drawing so much attention to the deficit rather than emphasizing the fundamental matters,” said Simona Mocuta, senior economist at State Street Global Advisors.

U.S. concerns over China’s mercantilist policies are widely shared by China’s other trading partners, including the European Union and Japan. But persuading Chinese President Xi Jinping to temper his drive to overtake more technologically advanced economies is likely to require united action with U.S. allies.

And Trump irked those countries by first threatening them with a separate wave of tariffs before moving against China.

“I wish they would spend more time and effort coordinating with others. It’s more effective with China when you can do that,” said Dennis Wilder, the CIA’s ­former deputy assistant director for East Asia and the Pacific. “Had we coordinated better, the pressure could have been larger on the Chinese.”

Chinese officials are ready to bargain over some items on the U.S. wish list, though revising their key industrial policies probably would not happen any time soon, he said. In the short run, China might address Trump’s concerns over the trade deficit by lowering its 25 percent tariff on imported automobiles and accelerating purchases of major American products, such as Boeing aircraft, he said.

Officials in Beijing, however, complain that as the Trump administration intensified its complaints about China’s trade practices in recent weeks, it remained unclear who is the administration’s lead negotiator, said Wilder, the managing director for a U.S.-China dialogue under the auspices of Georgetown University, who was in Beijing last week.

Mnuchin has recently corresponded with China’s vice premier, Liu He, about trade issues, which are Lighthizer’s purview.

How trade wars end — and why Trump’s will be different

“They will be looking for the administration’s bottom line. What the Chinese tell me is the administration won’t tell them what is their bottom line,” Wilder said. “I see the real negotiation starting now.”

Administration officials reject the criticism about confusing signals. In their view, U.S. officials have repeatedly raised complaints over unfair Chinese practices with the government in Beijing, only to receive lip service rather than tangible change. Since 2010, the Chinese government has pledged at least eight times to stop requiring foreign companies to hand over their technology in return for market access, according to the Office of the U.S. Trade Representative.

“It’s very easy to get them to promise to do things. It’s much harder to get them to actually do things,” said a USTR official, who spoke on the condition of anonymity to brief reporters on the administration’s thinking.

The official would not answer questions about potential negotiations. But there is a negotiating window available, if the administration chooses to use it.

The U.S. tariffs will not take effect for weeks or months after the end on May 22 of a public comment period. After that, Lighthizer has until Aug. 18 to finalize the tariff list. Though the president is unlikely to dawdle, he could in theory wait an additional 180 days beyond that date to impose the tariffs.

Earlier Wednesday, the president blamed his predecessors for the lopsided U.S.-China trade relationship. “We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S. Now we have a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion. We cannot let this continue!” he tweeted.

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