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2 Months : From Jul 2019 to Sep 2019
By William Mauldin and Vivian Salama
WASHINGTON -- President Trump moved Thursday to extend tariffs to essentially all Chinese imports, escalating a trade conflict that is poised to hit U.S. consumers directly in the pocketbook and roiling financial markets.
The new tariffs would take effect Sept. 1 and cover $300 billion in Chinese goods -- including smartphones, apparel, toys and other consumer products. They would come on top of tariffs already imposed on $250 billion in imports from China.
"If they don't want to trade with us anymore, that would be fine with me, " Mr. Trump said at the White House.
According to a person familiar with the situation, the tariff hike was opposed by U.S. Trade Representative Robert Lighthizer, Treasury Secretary Steven Mnuchin, White House economic adviser Lawrence Kudlow and national security adviser John Bolton. But Mr. Trump was adamant in pushing the increase and was supported by White House adviser Peter Navarro, this person said. A spokesman for Mr. Lighthizer said he "supports the president's action."
Wall Street was rattled by the news, with the Dow Jones Industrial Average erasing a rebound of more than 300 points. The index closed down 281 points, or 1.1% lower. The S&P 500 slid 0.9% and the technology-heavy Nasdaq Composite lost 0.8%. Oil prices sank almost 8%, their biggest drop since February 2015.
The U.S. action could prompt fresh retaliatory measures from Beijing, although there is also the possibility Mr. Trump could withdraw his threat before the new levies go into force.
Mr. Trump made public his plans to impose tariffs in a series of tweets that followed a briefing from his trade team on this week's negotiations in Shanghai. Those talks ended with neither side detailing significant progress toward resolving the more than yearlong dispute.
Mr. Trump said that senior officials still planned to resume high-level discussions as scheduled next month, and he expressed his interest in reaching "a comprehensive Trade Deal" with China.
But Mr. Trump chided President Xi Jinping of China for not following through on what the Trump administration views as prior commitments. "China agreed to...buy agricultural products from the U.S. in large quantities, but did not do so," he wrote on Twitter. "Additionally, my friend President Xi said that he would stop the sale of Fentanyl to the United States -- this never happened, and many Americans continue to die."
An official at the Chinese embassy in Washington didn't respond to a request for comment.
The Wall Street Journal reported this week that the slow progress in trade talks was partly the result of a new tactic from Beijing, which increasingly thinks waiting may produce a more favorable agreement.
In the U.S., business groups condemned the escalation of tariffs.
"Tariffs are not the answer, escalation is not the answer," said Myron Brilliant, head of international affairs at the U.S. Chamber of Commerce in Washington. "We have to be careful about actions undertaken by either government that would stir the pot and not create the best atmosphere for getting these complicated talks back on track."
The tariffs, essentially a tax paid by importers in the U.S., affect practically all the groups of Chinese products not hit previously, with the exception of select categories, such as medicines.
Unlike previous rounds of tariffs, which have focused largely on industrial goods, the $300 billion tranche is set to include a host of consumer products, from electronics and cellphones to apparel.
The tariffs would affect about $45 billion in cellphones, $39 billion in laptops and tablets, and $5.4 billion in videogame consoles, according to the Consumer Technology Association, a trade group.
The tariff plans threaten to undermine U.S. sales of iPhone and other Apple products, which are largely produced in China. Apple would either have to eat the tariff costs on iPhones -- which analysts have estimated would be about $40 on the import price of XS models -- or pass those costs on to customers.
Apple's business in China also faces risks from potential Chinese retaliation, trade experts and analysts said. The company, which has relied on China, Hong Kong and Taiwan for about a fifth of sales, would be a potential target for China because it had a nearly 6% share of the Chinese smartphone market in the June quarter.
Shares of Apple fell 2.1% Thursday, erasing a 2% surge on Wednesday after the company reported it returned to sales growth in the three month period ended June 29.
Dow Jones & Co., publisher of The Wall Street Journal, has a commercial agreement to supply news through Apple services.
The toy industry, which sources about 85% of products from China, has been bracing for the tariffs, including moving manufacturing to places like Vietnam, Indonesia and Mexico and importing the goods into the U.S. sooner.
Hasbro Inc. has notified retailers that it plans to raise prices on any toys hit by tariffs and it also expects that retailers will take ownership of inventory in the U.S. instead of China, which will add to the toy maker's shipping and warehousing costs, according to Chief Financial Officer Deborah Thomas.
Like Hasbro, Mattel, which makes Barbie dolls and Hot Wheels cars, is looking to reduce its manufacturing footprint in China. "We have put together a contingency plan and are working closer with retailers to make sure we mitigate the impact," Mattel CEO Ynon Kreiz said in an interview last month. "There are different levers we can pull," he said, including using manufacturers and vendors in other countries.
Toy makers may struggle to raise prices during the holiday season because they have already set prices with retailers, said Steve Pasierb, president of the Toy Association trade group, meaning that the tariffs will hit the manufacturers' profits. A larger concern is that as prices rise for other consumer goods hit by tariffs, consumers may think twice about spending as much on discretionary purchases like toys.
"It's a big concern because holiday spending power is important as we finish the year," Mr. Pasierb said.
North Carolina entrepreneur Brett Portaro, who has developed a line of Powercharger Corp.-brand cellphone-charging accessories, said he was disappointed by the tariff news.
"For a new company like Powercharger, we can't adjust our supply chain fast enough since almost all of the lithium-ion batteries used in our products are made in China," he said.
The tariffs plan is the latest move by Mr. Trump to put pressure on the Chinese side in hopes of winning concessions to help U.S. businesses and farmers. Previous warnings of additional tariffs have often been postponed, but three rounds eventually took effect. Economists say the trade conflict is souring investment and hurting economic growth in both countries.
Many Republican and Democratic lawmakers have backed Mr. Trump's strategy of confronting Beijing as a necessary step to achieve structural changes in the Chinese economy.
"Tariffs aren't the only solution President Trump should use to pressure China, but China isn't making any friends in Congress with its behavior, " wrote Sen. Chuck Grassley (R., Iowa), the chairman of the Senate Finance Committee, in a tweet. "China has a responsibility to follow through on its commitments on fentanyl + ag purchases + trade talks."
About three-quarters of Republican voters support tariffs on China without approval from the World Trade Organization, while about three-quarters of Democrats oppose them, according to a June survey from the University of Maryland.
One Democratic presidential candidate, Rep. Tulsi Gabbard of Hawaii, said in the primary debate on Wednesday that she would remove the tariffs if elected.
The latest round of tariffs, if imposed, is likely to generate more complaints from consumers and voters. On the other hand, Mr. Trump also faces potential criticism going into a presidential election year if he compromises deeply and cuts a deal with China, since Democrats and hawks in his own party have signaled they would criticize any perceived shortcomings.
The Trump administration appears to be aiming to alleviate consumer and business concerns by starting with tariffs of only 10%, a move that also allows U.S. officials room to raise the tariff level in the future if China doesn't follow through with concessions.
"The 10% is for a short-term period and then I could always do much more or less, depending on what happens with respect to a deal," Mr. Trump said.
Meanwhile, U.S. farmers are increasingly suffering from retaliation from China and other countries where the Trump administration has penalized trade. Farm products are also facing a disadvantage in Japan, which has opened its markets to other countries through the Trans-Pacific Partnership, a deal Mr. Trump withdrew from.
After meeting Mr. Xi in Osaka, Japan, in June, Mr. Trump and administration officials said they had won commitments from Beijing to purchase more U.S. agricultural products. The administration is also seeking a quick trade agreement with Japan focused on agriculture.
But Beijing hasn't said that it committed to the purchases, and Chinese firms have made only limited purchases of agricultural commodities in recent weeks.
The U.S. team in Shanghai this week, led by Mr. Lighthizer and Mr. Mnuchin, was hoping the Chinese side would commit to purchasing a defined quantity of U.S. agricultural goods, people following the talks said.
China is likely holding out on buying large amounts of U.S. farm goods while waiting for concessions from the U.S. side, the people said.
Mr. Trump has said his administration would take a softer approach on Chinese telecommunications giant Huawei Technologies Co., allowing firms to do business with the blacklisted company if it doesn't trigger security concerns.
So far the Trump administration hasn't formalized licenses for U.S. firms to sell semiconductor chips and other products to Huawei. Administration officials are looking at a plan that would allow chip companies to sell to Huawei consumer products, such as cellphones, but not sell advanced chips to the company's telecommunications infrastructure, which many U.S. officials view as a national-security threat.
--Katy Stech Ferek and Andrew Restuccia in Washington, Tripp Mickle in San Francisco and Paul Ziobro in New York contributed to this article.
Write to William Mauldin at firstname.lastname@example.org and Vivian Salama at email@example.com
(END) Dow Jones Newswires
August 01, 2019 19:39 ET (23:39 GMT)
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