Trade tensions between the world's twobiggest economies intensified, with China vowing to retaliate“forcefully” against President Donald Trump's threatened tariffs onanother $200 billion in Chinese imports.“If the U.S. loses itssenses and publishes such a list, China will have to takecomprehensive quantitative and qualitative measures,” according toa statement from the Ministry of Commerce. It labeled the move“extreme pressure and blackmail,” and said it would retaliate withcounter measures.Trump ordered up identification of $200 billion inChinese imports for additional tariffs of 10 percent—with another$200 billion after that if Beijing retaliates. While the $50billion in tariffs already announced on Friday were mainly onindustrial goods, the broader move would push up prices for toys,tools, t-shirts, and a lot more for U.S. shoppers.Equities fellaround the world as economists warned of damaged businessconfidence, a blow to China's growth prospects, and ripple effectsthrough its supply chains. The S&P 500 Index slipped 0.9percent at 9:58 a.m. in New York. The benchmark index of Chinesestocks fell almost 4 percent, other Asian share markets declined.Safe havens including the yen, gold, and Treasuries climbed.“Itspsychological effects, its effects in increasing uncertainty, couldbe very serious and we're certainly getting later in a cycle ofescalation,” former U.S. Treasury Secretary Lawrence Summers saidin an interview on Bloomberg Television.By targeting goods that arefinished in China but whose components are often sourced fromneighboring South Korea, Japan, Taiwan, and more, the U.S. strategycould hurt the economies of America's allies too."The collateraldamage from an escalating U.S.-China trade war will be widespread,hitting many Asian countries that are part of China's manufacturingsupply chain in sectors such as electrical and electronicproducts," said Rajiv Biswas, Asia-Pacific chief economist at IHSMarkit in Singapore.There are dangers for the U.S. economy too. Ifimplemented, the tariffs would mean a sizable amount of importedChinese goods would be exposed to new tariffs. Higher prices onimported goods could dampen consumer sentiment and pressureinflation.“In a global trade war, no matter how you spin tariffs,retailers and the American families that we serve are the losers,”said Hun Quach, vice president, international trade, for the RetailIndustry Leaders Association.Tom Orlik, chief economist atBloomberg Economics, said that in the event that China's exports tothe U.S. weaken in the face of tariffs, the government would likelyseek to offset the growth impact with a combination of subsidies tosupport domestic demand and higher infrastructure investment.ThePeople's Bank of China is using both money and words to try to easemarket concerns about escalating trade tensions and the weakeningeconomy. It injected another 200 billion yuan ($31 billion) intothe economy via its medium-term lending facility on Tuesday,pushing its net injections so far in June to the most in any monthsince December 2016.The escalation in trade tensions comes at aninopportune time for China's policymakers, with indicators for Maysuggesting growth is already dialing back a notch.The U.S. president last weekthreatened 25 percent tariffs on $50 billion in Chinese productsand said at the time he would impose even more duties if Chinaretaliated. A counter punch was swift in coming, with a statementfrom Beijing on Friday night that it would "strike backforcefully."China's threat “clearly indicates its determination tokeep the United States at a permanent and unfair disadvantage,”Trump said Monday. “This is unacceptable. Further action must betaken to encourage China to change its unfair practices, open itsmarket to United States goods, and accept a more balanced traderelationship.”The latest salvo came as Trump seeks to convince U.S.lawmakers to let Chinese telecom company ZTE Corp. remain inbusiness after it became a bargaining chip in the trade row.Earlier this month, the Trump administration gave ZTE a reprievefor breaking a sanctions settlement after the company agreed to payfines, change management, and agree to American oversight. ZTE'ssurvival has been a key goal of Chinese President Xi Jinping.Sharesin ZTE declined after the Senate passed legislation on Mondayevening that would restore penalties.The U.S. imported $505 billionof goods from China last year and exported about $130 billion,leaving a 2017 trade deficit of $376 billion, according to U.S.government figures. The fact that America imports more from Chinawill make it harder for Beijing to match Trump's attacks, accordingto Derek Scissors, a resident scholar at the conservative AmericanEnterprise Institute in Washington who focuses on China.“All they can do is impose highertariffs on a smaller subset of products,” he said. That being said,“China is going to retaliate,” he added.

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.

Continue Reading for Free

Register and gain access to:

  • Thought leadership on regulatory changes, economic trends, corporate success stories, and tactical solutions for treasurers, CFOs, risk managers, controllers, and other finance professionals
  • Informative weekly newsletter featuring news, analysis, real-world cas studies, and other critical content
  • Educational webcasts, white papers, and ebooks from industry thought leaders
  • Critical coverage of the employee benefits and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.