BA Boeing Co

By Yoko Kubota and Chao Deng 

BEIJING -- China threatened to retaliate if the U.S. moves to place fresh tariffs on an additional $300 billion in Chinese goods, though Beijing faces limited options to strike back without hurting its economy.

China's Foreign and Commerce ministries each said Friday that the government would take necessary countermeasures should the Trump administration proceed with its threat to escalate the trade dispute by imposing the new 10% tariffs Sept. 1. The new tariffs would come on top of tariffs already imposed by the U.S. on $250 billion in imports from China. Neither Chinese agency specified what Beijing might do in return.

Easy targets -- according to business executives and analysts -- include canceling planes from Boeing Co., which has orders from Chinese airlines for 478 of the 737 MAX passenger jets that have been grounded worldwide after two crashes. Delivery company FedEx Corp. is already under investigation by Chinese authorities -- and pilloried in state media -- for mishandling packages destined for telecom gear-maker Huawei Technologies Co.

Boeing and FedEx didn't immediately respond to requests for comment. FedEx has previously apologized for the mishandling and said it is cooperating with authorities.

Other forms of Chinese retaliation might include stricter or more frequent government inspections of businesses, plus delays in license issuances required to do business in China, industry experts and executives said.

Beijing will have to proceed carefully in retaliating, these experts said, to avoid scaring off foreign investment more widely and damaging its economy, which is in the midst of a slowdown.

China's Communist Party leadership said this week that authorities will increase support to maintain steady growth -- and many economists believe the government has the policy firepower to do so in the short-term. Leaders also remain concerned about employment. They have especially called for a stable economy ahead of the 70th anniversary of Communist Party rule on Oct. 1.

Foreign companies have directly invested hundreds of billions of U.S. dollars in the mainland in recent years, and U.S. multinationals employ more than two million Chinese locals, according to an estimate by Citigroup. "It's a very sizable number, and most of those jobs are high-paying," said Liu Li-Gang, an economist at the bank. "I'm doubtful they would target those firms indiscriminately."

Mr. Liu and others said concerns about unemployment and companies moving their supply chains out of China, in particular, are likely to keep Beijing's retaliation in check.

President Trump's announcement of the new tariffs Thursday mean that, should they go into effect, nearly all the goods the U.S. imports from China would be hit with punitive levies. Earlier in the nearly 18-month-old dispute, Beijing initially vowed tit-for-tat retaliation and did so when the Trump administration placed tariffs on $50 billion in Chinese goods.

But China imports far less from the U.S. than it exports, leaving Beijing unable to match Washington's tariff escalation. Beijing has slapped tariffs on $110 billion in U.S. products, in response to Mr. Trump's hitting $250 billion in Chinese imports with punitive levies. It only has about $10 billion in U.S. goods left to hit in response to the threatened U.S. tariffs against $300 billion in Chinese products.

In recent weeks, both central and local governments have actively sought to assure foreign companies that they are welcome. In July, Vice Premier Hu Chunhua spent more than two hours hearing out executives from U.S. companies including Cargill Inc., General Electric Co., Harley-Davidson Inc. and Microsoft Corp., along with European, Japanese and South Korean companies, at a closed-door meeting, according to people who were present.

Mr. Hu jotted down notes as the foreign executives took turns sharing their concerns, which ranged from possible fallout from a protracted trade dispute to worries about how a new investment law would be enforced, the people said. Mr. Hu and other high-level officials present promised a more-liberal business environment and urged the foreign businesses to invest more, they said.

A Cargill spokeswoman said the company is urging U.S. and China to reach a resolution that reduces barriers to trade. A Microsoft spokeswoman declined to comment. GE and Harley-Davidson, as well as the Commerce Ministry and the government's information office, didn't immediately respond to requests for comment.

Enlisting the support of Chinese nationals and their purchasing power also remains an option in Beijing's retaliatory toolbox. On Chinese social media, commenters have called on consumers to replace Nike with Germany's Adidas, Converse with China's Feiyue and Warrior, and Apple with Chinese smartphone brands like Huawei.

Already, more than half of some 1,000 Chinese consumers responding to a June survey by public relations firm Brunswick Group said they avoided purchasing an American product to show support for Beijing in the ongoing dispute.

"There is nationalism now at play," said Isaac Larian, chief executive of MGA Entertainment, a toy company based in Chatsworth, Calif. "Chinese consumers are no longer buying iPhones, they want to buy Huawei. Unfortunately once that happens, I think it has a very long-term effect. People are not going to come back."

The threat of new American levies came a month after Mr. Trump and Chinese President Xi Jinping agreed to a tariff ceasefire to allow negotiations to resume. A new round of trade talks held in Shanghai this week ended without apparent progress except for an agreement to meet again in September, and China appeared to be caught off guard by Mr. Trump's announcement of new tariffs.

"The Chinese side will not give in to any extreme pressure, intimidation or blackmail and we will never concede an inch on major issues of principle," said Chinese Foreign Ministry spokeswoman Hua Chunying.

China's vows of retaliation largely hewed to the rhetoric used since May, when negotiations faltered amid what U.S. officials said was China's reluctance to commit to structural and legal changes to provide for fairer treatment of American companies. After that breakdown, both governments enacted measures that business lobbyists say will make reaching a trade deal more difficult.

After Washington put Huawei on a blacklist blocking its access to American technology, Beijing created an unreliable entity list. In making that announcement, the Commerce Ministry gave itself ample leeway to place companies on the list, saying it would be comprised of foreign companies, organizations and people that violate market rules, disrupt suppliers to Chinese companies and damage Chinese national interests.

Last week, the Global Times, a nationalistic state-run tabloid, reported that FedEx, along with Flex Ltd., a contract manufacturer of electronics that assembles Huawei products, could be included in the list.

FedEx, in the wake of the investigation that it mishandled Huawei packages, has apologized and said it is cooperating with authorities. The company, which invested more than $100 million in a new Shanghai facility last year, would take a significant financial hit should it be blacklisted further from China: UBS Group AG estimates FedEx earns about $4.5 billion annually from its China business, roughly 7% of its total revenues.

The Global Times said that American-Singaporean Flex held up materials and equipment that belonged to Huawei. A Flex spokesman said both it and Huawei "are actively working to find a mutually agreeable way forward" and that China will remain "a very important center of production and end-market for Flex."

--Trefor Moss, Julie Wernau, Shan Li and Kersten Zhang contributed to this article.

(END) Dow Jones Newswires

August 02, 2019 09:14 ET (13:14 GMT)

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