https://www.wsj.com/articles/tariff-showdown-shifts-to-intense-negotiation-period-1522872439
Tariff Showdown Shifts to Intense Negotiation Period
After Washington and Beijing crank up pressure on trade, lawmakers, business interests and lobbyists look to navigate new rules
U.S. President Donald Trump, left, and Chinese President Xi Jinping will be closely watched as their nations seek to negotiate a new normal after proposing wide-ranging tariffs that could spark a trade war.
Photo: Agence France-Presse/Getty Images
Josh Zumbrun
@JoshZumbrun
josh.zumbrun@wsj.com
Updated April 5, 2018 1:07 pm ET
WASHINGTON—The Trump administration's tit-for-tat with Beijing over potential tariffs has ushered in a high-stakes standoff over the future of trade between the world's two largest economies.
The combatants will now follow a timeline stretching over the next half year, during which the two sides will seek to negotiate a new normal. President Donald Trump, who initiated the tensions over Chinese trade practices, has put himself in a position to face mounting pressures from lawmakers, an intense campaign from corporate lobbyists, and outcry from businesses big and small navigating cumbersome new trade rules—all of which was feeding tremendous volatility in the stock and commodities markets.
U.S. administration officials did little to gloss over the likelihood that the trade spat had entered a period of protracted negotiations—and more market turmoil—and suggested the president was willing to withstand domestic pressures to achieve an improved trading relationship with Beijing. The clear signal from the White House was the U.S., while open to discussing solutions, wasn't prepared to back down anytime soon.
"It'll be a couple months before tariffs on either side would go into effect," said White House press secretary Sarah Huckabee Sanders. "I would anticipate that if there are no changes to the behavior of China and they don't stop the unfair trade practices, then we would move forward."
The developments drove wild swings in the financial markets. Stocks initially tumbled on the news, led by declines of 5% or more in some major U.S. exporters such as Boeing Co. and Deere & Co., before major indexes began recovering. The Dow rose 230.94, or 1%, to close at 24264.30 after earlier falling as much as 510 points.
As the trade negotiations grind on, many investors resigned themselves to more significant price swings in the markets, especially in light of additional uncertainties from rising interest rates to questions over the staying power of an economic expansion now in its ninth year.
Tariff Targets
A wide range of goods would be affected by the recently announced levies.
Machinery, mechanical
appliances, electrical
Food, beverages,
Textiles, apparel
Mineral fuels
Vehicles, aircraft
Plastics and rubber
Value of 2017 Chinese exports to the U.S. affected by U.S. tariffs:
Value of 2017 U.S. exports to China affected by Chinese tariffs:
Larger passenger vehicles
Larger aircraft*
A wide range of goods would be affected
by the recently announced levies.
Food, beverages, tobacco
*Airplanes and other aircraft; of an unladen weight exceeding 33,000lbs. Note: Industry categories are created using Harmonized System sections
Source: Peterson Institute for International Economics
At the same time, many investors remain skeptical that the trade-war fears that have absorbed market participants periodically in recent months will ever come to fruition.
Should some of the tariffs on the table—either U.S. or Chinese—become policy, "then that could create a shadow on earnings," said Omar Aguilar, chief investment officer of equities and multiasset strategies for Charles Schwab Investment Management. But, he added, "so far it seems like just posturing."
Real Time Economics
The latest economic news, analysis and data curated weekdays by WSJ's Jeffrey Sparshott.
Under the U.S. plan to introduce tariffs, companies have 30 days to submit comments on the Chinese imports that will be subject to the 25% tariffs, a list of 1,333 goods that includes machinery and materials, upon which U.S. industry has grown to rely on to conduct business. Companies will have the opportunity to raise concerns and to note if goods crucial to business—highly specialized machine tools, for example—have been targeted, or if different goods should be included in the tariff list.
The Chinese side, meantime, has put together its own list, which includes levies on soybeans, autos and airplanes, the export of which has grown crucial to the success of many U.S. businesses. "Both sides have put their lists on the table," China's Vice Finance Minister Zhu Guangyao told reporters. "Now it's time for negotiations."
U.S. business interests will be allowed to air concerns publicly at a May 15 hearing at the International Trade Commission, and companies will have until May 22 to object to the proposed tariffs. "The fact they did it with a 30-day comment period is not that they care about the comments," said William Reinsch, a senior adviser at the Center for Strategic and International Studies, a Washington think tank. "The point is to buy time for a negotiation."
After May 22, the U.S. government still has 180 days to decide whether to go ahead, meaning the standoff could last a long time. If Washington backs off, Beijing is likely to do the same.
The two sides have been negotiating behind the scenes. Chinese economic envoy Liu He has exchanged letters with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin over increased opening of the Chinese market. Mr. Mnuchin has been weighing a trip to Beijing, though its timing is uncertain.
China's President Xi Jinping will give a closely scrutinized speech next week at the Boao Forum for Asia, China's version of Davos that takes place with world political and business leaders on the southern Chinese island of Hainan. Both sides' business sectors will be watching closely for signs about China's position in the talks with the U.S.
The threat of U.S. tariffs now also hangs over a handful of consumer-goods markets including household appliances, lithium ion batteries, and parts for air conditioners—sectors that China hopes to dominate. Many of the products are goods that Beijing outlined in 2015 as part of its "Made in China 2025" goals for Chinese industry, but doesn't yet produce at a large scale.
Both countries' lists total approximately $50 billion worth of goods, a sum that hits about 38% of U.S. exports to China. As China is the much larger exporter, the sum hits only about 10% of Chinese exports to the U.S. Even if the tariffs went into place, the direct impact would be relatively small for the $19 trillion U.S. economy and $12 trillion Chinese economy.
President Trump says China is forcing U.S. companies to transfer their technology secrets to China. WSJ's Shelby Holliday tells you how. Illustration: Adele Morgan
Yet, while the actions threatened so far may stop short of what most analysts would consider a full-blown "trade war," they have ignited a lobbying battle engulfing much of American industry, and a market shakeout as investors pull out of companies who trade in the goods targeted by Beijing and Washington for action.
Congress has been reluctant to do anything beyond warn the Trump administration that it risks a full-blown trade war, although behind the scenes some lawmakers, especially Republicans, want the government to find a quick solution to the tension.
"Every town hall I go to, trade or tariffs is one of the big questions. That's what's on their mind," said Sen. Joni Ernst (R., Iowa) on Wednesday. "They are starting to question the president and where we're going with this," she said, adding that she was going to express her concerns directly to Mr. Trump on Wednesday. "I need for him to understand that we're hurting in the Midwest and this is not helping."
U.S. Announces Tariffs on $50 Billion of China Imports
China's Tariff Threat Jolts Soybean Market, U.S. Farm Belt
China Tariffs Would Affect Few Boeing Jets
Study: Tariffs No Boost to U.S. Blue-Collar Jobs
Rocket Launchers, Robots and Drugs: Dissecting Trump's Tariff List
Stocks Waver as Trade Concerns Grow
Analysis: How U.S. Tariffs Could Hurt China
U.S. Asks China for Plan to Reduce Trade Deficit by $100 Billion
How China Gets Its Hands on U.S. Tech
List of Products Exposed to U.S. Tariffs
Iowa is among the largest soybean-producing states, and the state's other senator, Republican Sen. Chuck Grassley, noted on Wednesday that he had cautioned Mr. Trump his administration would own any harm caused by Chinese retaliation.
"If the federal government takes action on trade that directly results in economic hardship for certain Americans, it has a responsibility to help those Americans and mitigate the damage it caused," Sen. Grassley said in a statement, adding he would work through the Senate Finance Committee, among other venues, to address the matter.
Indeed, soybean futures fell 2.2% Wednesday, as China is the world's largest importer. Meanwhile, some shares of companies that could face retaliatory Chinese tariffs fell Wednesday, with aerospace giant Boeing down 1%.
Trade groups representing industries from agriculture, retailers and manufacturers were quick to raise objections when the lists were announced. Even groups spared from direct tariffs, like the American Apparel & Footwear Association, expressed concerns, with its President Rick Helfenbein saying that while he was pleased apparel, footwear and travel goods weren't the subject of tariffs, he was still concerned the list would hit machinery used by domestic apparel manufacturers.
"This would directly raise costs on domestic manufacturers and impact our ability to grow 'Made in U.S.A.,' " he said.
—Rebecca Ballhaus, Siobhan Hughes, William Mauldin and Akane Otani contributed to this article.
The value of 2017 Chinese exports in categories affected by tariffs proposed by the U.S. on April 3 was an estimated $46.2 billion. The value of 2017 U.S. exports in categories affected by subsequently announced Chinese tariffs was an estimated $49.8 billion. A graphic with an earlier version of this article incorrectly reversed the figures. (April 5, 2018)
Write to Josh Zumbrun at Josh.Zumbrun@wsj.com
Appeared in the April 5, 2018, print edition as 'Showdown Over Tariffs Shifts To High-Stakes Negotiations.'