President Donald J. Trump signaled he may escalate the trade war with China in the coming hours after the country’s latest round of tariffs, firing off a new demand that US companies seek alternatives to producing goods in China.
“I will be responding to China’s tariffs this afternoon. This is a great opportunity for the United States,” Trump tweeted on Friday, after China threatened to impose additional tariffs on $75 billion in American goods, including soybeans, cars and oil.
A meeting on trade took place around midday in the Oval Office, according to people familiar with the discussions.
Trump added in a flurry of tweets that he “hereby ordered” American companies to start looking for alternatives to making products in China. It wasn’t immediately clear what legal authority the president would have to force such corporate decisions.
The president laced into China, saying “We don’t need China” and that the US would be “better off without them.” He also took aim at the Federal Reserve over what he’s called its failure to lower interest rates to boost the economy and keep the dollar from becoming too strong, which weighs on exports.
US stocks fell after Trump’s remarks, with the S&P 500 Index dropping 2.6 percent on the day. Technology stocks were hardest-hit. Treasuries rallied.
The angry set of tweets from Trump came after China announced its retaliation for new US tariffs due to take effect September 1 and Federal Reserve Chairman Jerome Powell repeated his concern that US trade policy was contributing to a slowdown in both US and global economies. They also reflected Trump’s growing frustration with the lack of progress in his trade battles with China, according to analysts close to the White House.
“The president has been increasingly frustrated in the last three months” with China after the May breakdown of talks that he believed were about to yield a deal, said Michael Pillsbury, a China expert with the Hudson Institute in Washington with whom Trump has consulted in the past.
Trump’s most likely response, Pillsbury said, would be to raise tariffs from 10 percent to 25 percent on remaining imports from China that are due to start taking effect September 1. But he had other ways to increase pressure, Pillsbury added, including giving the final green light to sales of F-16s to Taiwan that have been signed off on by the State Department. The administration has notified Congress it intends to go ahead with the sale.
Derek Scissors, a China expert at the American Enterprise Institute who has also advised the administration, agreed that an increase in tariffs was the most likely course of action, though it could be staged to give China more time to respond.
Trump’s order to US companies to abandon China would mean very little in the short term, Scissors said. But the president does have other ways he could increase pressure on US companies to stop doing business with China, particularly if he chose to invoke a national security emergency and ban tech companies from selling certain products to Chinese buyers.
“It’s worth the market being a little nervous that US tech companies are involved with China and that they are providing China with dual-use technologies,” Scissors said. “That’s what the hawks are angry about. So the president can take action against those companies not by ‘I hereby order,’ but by starting a process where the direct pressure on them goes up.”
China’s newest tariffs came earlier Friday in retaliation for Trump’s latest planned levies on Chinese imports, which have pushed US stocks and commodities lower. The move takes aim at the heart of Trump’s political support—factories and farms across the Midwest and South at a time when the US economy is showing signs of slowing.
Trump reiterated his criticism of the Fed after Powell’s remarks were released earlier Friday morning: “My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?” Trump said in one of his tweets, referring to Chinese President Xi Jinping.
The news from Beijing rekindled concerns about the world’s two largest economies and a global growth outlook that’s already looking shaky.
Some of the Chinese countermeasures will take effect starting September 1, while the rest will come into effect from December 15, according to the announcement from China’s Finance Ministry. This mirrors the timetable the US has laid out for 10-percent tariffs on almost $300 billion of Chinese shipments.
China will put an extra 5-percent tariff on American soybeans and crude-oil imports starting next month. The resumption of a suspended extra 25 percent duty on US cars will resume December 15, with an additional 10 percent on top for some vehicles. With existing general duties on autos taken into account, the total tariff charged on US-made cars would be as high as 50 percent.
The US Chamber of Commerce called China’s move “unfortunate but not unexpected.”
“The fact of the matter is that nobody wins a trade war, and the continued tit-for-tat escalation between the US and China is putting significant strain on the US economy, raising costs, undermining investment, and roiling markets,” Myron Brilliant, the chamber’s head of international affairs, said in a statement.
After Trump gave the go-ahead earlier this month for tariffs
on the almost $300 billion in Chinese
imports that haven’t been hit by
higher duties, China halted purchases of agricultural goods and allowed the
yuan to weaken.
Possible actions
Other than possibly raising the tariffs set to kick in September 1, it isn’t clear what action Trump might take. Inside the White House, hawks have been pushing for a direct intervention in currency markets by the Treasury by pointing to a slowdown in US manufacturing, which many economists have blamed on tariffs imposed by Trump and uncertainty surrounding his trade war with China.
Just how effective a Fed cut or an intervention would be is unclear. The relevant Treasury fund has $92 billion in it. Even if the Fed were to join in, as it has in past interventions, and match that amount, a $180 billion injection into a $5 trillion per day global foreign-exchange market might have a limited effect. It might also unnerve markets and have longer-term economic consequences.
Beyond that, the administration could raise further barriers to Chinese investment in the US or target China’s energy supply by revoking waivers that allow Beijing to continue purchasing oil from Iran and Venezuela. Trump could also take steps to further isolate Huawei Technologies Co., which the US deems a security threat, in its bid to supply 5G technology in the US. Or, Trump could take a harder line against Beijing over human rights and the autonomy of Hong Kong, where protests have raged for weeks.
Fentanyl order
US and Chinese negotiators have spoken by phone and are planning another call in coming days. People familiar with their intentions previously said that the Chinese delegation is sticking to their plan to travel to the US in September for face-to-face meetings, which may offer a chance for further reprieve.
Trump also ordered mail carriers to search for deliveries of the drug fentanyl coming from China.
“Also, I am ordering all carriers, including Fed Ex, Amazon, UPS and the Post Office, to search for and refuse” deliveries of the illegal drug. It isn’t clear what the carriers’ responsibilities are in halting those shipments, which have helped fuel an opioid epidemic in the US.
Stopping shipments of illegal fentanyl that enter the US is a job that typically falls to government agencies such as the Drug Enforcement Administration, Food and Drug Administration, and Customs and Border Protection.
Illegal Chinese fentanyl is increasingly entering the US through the Mexico border via drug traffickers instead of being sent directly. It’s unclear if Trump also wants to stop legal fentanyl, often used by cancer patients to treat pain, from entering the US as well, which would cause an outcry from patients.