BEIJING — China’s commerce ministry on Wednesday morning promised to retaliate in a major escalation of a trade war brewing between the world’s two largest economies, after the Trump administration proposed a new round of taxes on Chinese goods worth $200 billion, this time including handbags and textiles.
China criticized new U.S. tariffs as “totally unacceptable” in a statement, saying it will take “necessary countermeasures” although it did not say immediately what that would be.
The proposed 10 percent levy was detailed by the USTR and involves wide-ranging consumer goods including textiles, hats, footwear, handbags and suitcases, beauty products, furniture, pet food, and more. The tariffs proposal will undergo two months of public notice and discussion, going into effect in September at the earliest.
The latest announcement follows a round of 25 percent tariffs imposed on July 6 worth $34 billion, covering mainly industrial equipment, vehicles and telecommunication, which China matched. It takes the total amount of U.S. imports from China subject to tariff to $250 billion, which is much more than the total Chinese imports from the U.S. of around $130 billion. The Trump administration has threatened to extend the measures to $500 billion worth of Chinese goods, or roughly the entire amount of U.S. imports from China.
While China does not have as much room as the U.S. to implement trade tariffs, it could find other ways to hit back.
Bank of America Merrill Lynch China economists Helen Qiao and Xiaozha Zhi wrote in a note that “China has the capability to broaden its retaliation to non-tariff areas. One easy target could be the U.S. companies operating in China, such as those U.S. brand names in fast food, beverages and consumer electronics.”
Citibank’s Johanna Chua highlighted that depreciation of the renminbi could also be a possible counterstrategy, also adding that this new U.S. stance “confirms the fear of an iterative cycle of retaliation that reduces the hope for a negotiated win-win solution.”
The ongoing tensions between the world’s two most powerful economies sent jitters through Asian markets on Wednesday.
The Shanghai Composite index ended the day down 1.76 percent and Hong Kong’s Hang Seng down 1.29 percent with Li & Fung in particular losing 2.32 percent of its share price. Japan’s benchmark Nikkei 225 fell 1.19 percent and South Korea’s Kospi lost 0.59 percent.
The American Apparel & Footwear Association condemned the tariff proposal.
“This move by the Trump administration, though expected, will not do anything to help American workers, American consumers, or American businesses,” said Rick Helfenbein, the association’s president and chief executive officer, urging the administration to resolve the “underlying issue” instead.
“By including items such as handbags, hats and textiles on this additional list of products, the administration has shown that it is not concerned about targeting the American public with its ‘Trump Tax.’ This will result in inflationary costs throughout the supply chain, ultimately paid for by American consumers,” Helfenbein said, while also noting that as an industry it is one already highly taxed and regulated.
Fung Business Intelligence, which is funded by sourcing giant Li & Fung, said that companies ought to look into diversifying their production and sourcing base. It suggested “acceptable alternative sources of production are beginning to emerge in Asia and beyond, including sub-Saharan Africa, and where existing sources (ex-China) are upgrading, such as Bangladesh, Cambodia and Indonesia.”