By Bloomberg
March 22, 2018

President Donald Trump is taking his boldest step to level the economic playing field with China, ordering sweeping tariffs on Chinese goods in a move that could escalate already tense trade relations between the world’s two biggest economies.

The president will instruct U.S. Trade Representative Robert Lighthizer to levy tariffs on about $50 billion in Chinese imports, a senior White House official said. Trump is scheduled to sign an executive memo issuing the instructions on Thursday in Washington. Within 15 days, USTR will come up with a proposed list of products that will face higher tariffs.

Trump will also direct Treasury Secretary Steven Mnuchin to propose new investment restrictions on Chinese companies within 60 days to safeguard technologies the U.S. views as strategic, said senior White House economic adviser Everett Eissenstat.

The move comes as policy makers across the world warn of a brewing trade war that could undermine the broadest global recovery in years. U.S. stocks fell sharply early Thursday amid worries that the U.S. action could provoke a stern response from China. Meanwhile, business groups representing companies ranging from Walmart Inc. to Amazon.com Inc. are warning U.S. tariffs could raise prices for consumers and sideswipe stock prices.

Fed Warnings

Even central banks, which normally stay above the fray of trade spats, are weighing in. “A number of participants reported about their conversations with business leaders around the country and reported that trade policy has become a concern,” Federal Reserve Chairman Jerome Powell said this week, while cautioning that trade issues haven’t changed the Fed’s outlook. The Bank of England warned Thursday that increased protectionism could have a “significant negative impact” on global growth.

The Trump administration is framing the move as a major turning point in U.S.-China relations. It followed a seven-month investigation by USTR into allegations China violates U.S. intellectual property, under the seldom-used section 301 of the 1974 Trade Act. The U.S. concluded China engages in a range of violations, including policies that force American companies to transfer technology and the accessing of trade secrets through hacking, said Eissenstat.

For more on U.S.-China trade dispute

Read about China and I.P. theft allegationsSee what economists say about trade-war impactWatch Bloomberg’s Enda Curran explain consequencesClick here for a breakdown of retaliation targetsTrump’s actions represent a “seismic shift from an era dating back to Nixon and Kissinger, where we had as a government viewed China in terms of economic engagement,” White House trade adviser Peter Navarro told reporters on Thursday. “That process has failed.”

“The problem is that with the Chinese in this case, talk is not cheap. It has been very expensive for America,” said Navarro. “Finally the president decided that we needed to move forward.”

Before the tariffs become final, there will be a 30-day comment period, the White House said. Trump is also directing his officials to pursue a World Trade Organization complaint against China for discriminatory licensing practices.

It will be Trump’s first trade action directly aimed at China, which he has blamed for the hollowing out of the American manufacturing sector and the loss of U.S. jobs. The Trump administration is also increasingly signaling it will exclude allies such as the European Union and Brazil from tariffs on steel and aluminum that take effect Friday, suggesting the U.S. is more interested in raising pressure on China, the world’s biggest producer of both commodities.

China Warning

China’s Ministry of Commerce has cautioned against the U.S. taking measures “detrimental to both sides.” The nation strongly opposes such unilateral and protectionist action, and will take “all necessary measures” to firmly defend its interests, the ministry said in a statement on its website.

“If Trump really signs the order, that is a declaration of trade war with China,” said Wei Jianguo, former vice commerce minister and now an executive deputy director of the China Center for International Economic Exchanges, a government-linked think tank.

What Our Economists Say

“$50 billion in tariffs against China, if that is what the U.S. moves ahead with, is serious money. Even so, the impact on China’s GDP would still be just a fraction of a percent off the growth rate,” Tom Orlik, chief Asia economist for Bloomberg Economics, wrote in a note. “The greater risk comes to China’s long-term development trajectory, if the rise of economic nationalism impedes their march up the value chain.”“China is not afraid, nor will it dodge a trade war,” Wei said. “We have plenty of measures to fight back, in areas of automobile imports, soybean, aircraft and chips. On the other hand, Trump should know that this is a very bad idea, and there will be no winner, and there will be no good outcome for both nations.”

Chinese Premier Li Keqiang said this week that the nation will further open its economy, including the manufacturing sector, and pledged to lower import tariffs and cut taxes. In opening manufacturing further, China won’t force foreign companies to transfer technology to domestic ones and will protect intellectual property, he said.

Bloomberg Economics estimates a global trade conflagration could wipe $470 billion off the world economy by 2020.

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