U.S.-China trade war heats up as tariffs take effect

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BEIJING/WASHINGTON -- U.S. tariffs on $34 billion in Chinese imports took effect as a deadline passed on Friday, and with Beijing having vowed to respond immediately in kind, the two biggest economies were set on a risky path toward a full-blown trade war.

Earlier on Friday, before the 0401 GMT deadline for tariffs was set to take effect, China’s state media lashed out at U.S. President Donald Trump, accusing the White House of behaving like a “gang of hoodlums” as the world’s two biggest economies headed toward outright trade war on Friday.

On Thursday, Trump warned that the United States may ultimately target over $500 billion worth of Chinese goods, or roughly the total amount that the United States imported from China last year.

Beijing has vowed to respond immediately with an equal amount of tariffs of its own against U.S. autos, agricultural and other products.

Chinese shares, which have been battered in the run-up to the tariff deadline, slipped further from early deals and pulled Asian markets down, while the yuan currency also weakened.

“In effect, the Trump administration is behaving like a gang of hoodlums with its shakedown of other countries, particularly China,” the state-run China Daily newspaper said in an English language editorial on Friday.

“Its unruliness looks set to have a profoundly damaging impact on the global economic landscape in the coming decades, unless countries stand together to oppose it.”

While the initial volley of tariffs was not expected to have major immediate economic impact, the fear is that a prolonged battle would disrupt makers and importers of affected goods in a blow to global trade, investment and growth.

“For companies with supply exposure to tariffs, they will move sourcing country of origin if they can; if they can’t, they’ll pass on as much of the tariff cost as they can, or see a cut in margins,” said Jacob Parker, vice president of China operations at the U.S.-China Business Council in Beijing.

“Companies don’t know how big this may get, or how it will end.”

On Thursday, Ford Motor Co said that for now, it will not hike prices of imported Ford and higher-margin luxury Lincoln models in China.

A China central bank adviser said the planned U.S. import tariffs on $50 billion worth of Chinese goods - $34 billion plus a planned follow-on list worth $16 billion - will cut China’s economic growth by 0.2 percentage points, although the overall impact would be limited, the official Xinhua news agency reported Friday.

China’s foreign minister said trade protectionism and unilateral actions were “short-sighted” and in a statement on Friday called on European counties to work with China to safeguard a globally free trade system.

On Thursday, China accused the United States of “opening fire” on the world with its raft of tariffs aimed at China, as well as at trade partners in North America and Europe.

The dispute has roiled financial markets including stocks, currencies and the global trade of commodities from soybeans to coal in recent weeks. U.S. stocks edged higher on Thursday, however, amid hopes that American trade tensions with Europe may ease after comments from German Chancellor Angela Merkel.

“This is not economic Armageddon. We will not have to hunt our food with pointy sticks. But it is applying the brakes to a global economy that has less durable momentum than appears to be the case,” Rob Carnell, chief economist at ING, said in a note to clients.

No sign of last-minute talks

There was no evidence of last-minute negotiations between U.S. and Chinese officials, business sources in Washington and Beijing said.

Beijing has said it will not “fire the first shot” in a trade war with the United States, but has made clear that Chinese tariffs on American goods would take effect immediately after U.S. duties on Chinese goods are put in place.

U.S. Customs and Border Protection officials are due to collect 25 percent duties on a range of products including motor vehicles, computer disk drives, parts of pumps, valves and printers and many other industrial components.

The list avoids direct tariffs on consumer goods such as cellphones and footwear. But some products, including thermostats, are lumped into intermediate and capital goods categories.

Chinese Commerce Ministry spokesman Gao Feng said on Thursday that the proposed U.S. tariffs would hit many American and foreign companies operating in China and disrupt their supplies of components and assembly work.

Foreign companies accounted for $20 billion, or 59 percent, of the $34 billion of exports from China that would be subject to new U.S. tariffs, with U.S. firms accounting for a significant part of that 59 percent, Gao said.

China has said it would respond with tariffs on hundreds of U.S. goods, including top exports such as soybeans, sorghum and cotton, threatening U.S. farmers in states that backed Trump in the 2016 U.S. election, such as Texas and Iowa.

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