China hit back quickly on Wednesday against the Trump administration's plans to impose tariffs on $50 billion in Chinese goods, retaliating with a list of similar duties on key U.S. imports including soybeans, planes, cars, beef and chemicals.
The speed with which the trade struggle between Washington and Beijing is ratcheting up – China took less than 11 hours to respond with its own measures – led to a sharp selloff in global stock markets and commodities.
U.S. President Donald Trump, who has long charged that his predecessors served the United States badly in trade matters, rejected the notion that the tit-for-tat moves amounted to a trade war between the world's two economic superpowers.
"We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S.," Trump wrote in a post on Twitter early on Wednesday.
Because the actions will not be carried out immediately, there may be room for maneuver. Publication of Washington's list starts a period of public comment and consultation expected to last around two months. The effective date of China's moves depends on when the U.S. action takes effect.
U.S. Commerce Secretary Wilbur Ross said in an interview with CNBC that it would not be surprising if the U.S. and China trade actions led to negotiations, although he would not speculate on when this might happen.
Investors were wondering, nonetheless, how far one of the worst trade disputes in many years could escalate.
"The assumption was China would not respond too aggressively and avoid escalating tensions. China's response is a surprise for some people," said Julian Evans-Pritchard, senior China economist at Capital Economics, noting that neither side had yet called for enforcement of the tariffs.
"It's more of a game of brinkmanship, making it clear what the cost would be, in the hopes that both sides can come to agreement and none of these tariffs will come into force," said Evans-Pritchard.
U.S.-made goods that appear to face added tariffs in China based, on an analysis of Beijing's list, include Tesla Inc electric cars, Ford Motor Co's Lincoln auto models, Gulfstream jets made by General Dynamics Corp and Brown-Forman Corp's Jack Daniel's whiskey.
Unlike Washington's list, which was filled with many obscure industrial items, China's list strikes at signature U.S. exports, including soybeans, frozen beef, cotton and other key agricultural commodities produced in states from Iowa to Texas that voted for Trump in the 2016 presidential election.
"China is also trying to weaken our will by targeting certain segments of our economy," White House trade adviser Peter Navarro said in an interview with National Public Radio.
"But let's remember: we buy five times more goods than they buy from us. They have a lot more to lose in any escalation in this matter."
While Washington targeted products that benefit from Chinese industrial policy, including its "Made in China 2025" initiative to replace advanced technology imports with domestic products in strategic industries such as advanced IT and robotics, Beijing's appears aimed at inflicting political damage.
Tobacco and whiskey, for example, are both on Beijing's list and are produced in states including Kentucky, home of Senate Majority Leader Mitch McConnell.
Beijing's list of 25 percent additional tariffs on U.S. goods covers 106 items with a trade value matching the $50 billion targeted on Washington's list, China's commerce and finance ministries said.
"This is a real game changer and moves the trade dispute away from symbolism to measures which would really hurt U.S agricultural exports," said Commerzbank commodities analyst Carsten Fritsch.
China's tariff list covers aircraft that would likely include older models such as Boeing Co's workhorse 737 narrowbody jet, but not newer models like the 737 MAX or its larger planes.
A Beijing-based spokesman for Boeing, the largest single U.S. exporter to China, declined to comment.
Beijing's announcement triggered heavy selling in global financial markets, with U.S. stock futures sliding 1.5 percent and U.S. soybean futures plunging nearly 5 percent and on track for their biggest fall since July 2016. The dollar briefly extended early losses, while China's yuan skidded in offshore trade.
Hours earlier, the U.S. government unveiled a detailed breakdown of some 1,300 Chinese industrial, transport and medical goods that could be subject to 25 percent duties, ranging from light-emitting diodes to machine parts.
The U.S. move, broadly flagged last month, is aimed at forcing Beijing to address what Washington says is deeply entrenched theft of U.S. intellectual property and forced technology transfer from U.S. companies to Chinese competitors, charges Chinese officials deny.
Foreign ministry spokesman Geng Shuang said China had shown sincerity in wanting to resolve the dispute through negotiations.
"But the best opportunities for resolving the issues through dialogue and negotiations have been repeatedly missed by the U.S. side," he told a regular briefing on Wednesday.
The tariff list from the office of U.S. Trade Representative Robert Lighthizer followed China's imposition of tariffs on $3 billion worth of U.S. fruits, nuts, pork and wine to protest U.S. steel and aluminum tariffs imposed last month by Trump.
WILL CONSUMERS PAY?
Many consumer electronics products such as cellphones made by Apple Inc and laptops made by Dell were excluded from the U.S. list, as were footwear and clothing, drawing a sigh of relief from retailers who had feared higher costs for American consumers.
A U.S. industry source said the list was somewhat unexpected in that it largely exempts major consumer grade technology products, one of China's major export categories to the U.S.
"The tech industry will feel like overall it dodged a bullet," the source said, but added that traditional industrial goods manufacturers, along with pharmaceuticals and medical device firms, could suffer.
Many U.S. business groups support Trump's efforts to stop the theft of U.S. intellectual property but have questioned whether tariffs are the right approach. They warn that disruptions to supply chains that rely on Chinese components will ultimately raise costs for consumers.
"Tariffs are one proposed response, but they are likely to create new challenges in the form of significant added costs for manufacturers and American consumers," National Association of Manufacturers President Jay Timmons said in a statement.
ALGORITHM SHIELDS U.S. CONSUMERS
USTR developed the tariff targets using a computer algorithm designed to choose products that would inflict maximum pain on Chinese exporters but limit damage to U.S. consumers.
A USTR official said the list got an initial scrub by removing products identified as likely to cause disruptions to the U.S. economy and those that needed to be excluded for legal reasons.
"The remaining products were ranked according to the likely impact on U.S. consumers, based on available trade data involving alternative country sources for each product," the official, who spoke on condition of anonymity, told Reuters.
Many products in those segments appear on the list, including antibiotics and industrial robots and aircraft parts.
USTR did include some key consumer products from China, including flat-panel television sets and motor vehicles, both electric and gasoline-powered, with engines of 3 liters or less.
A Reuters analysis that compared listed products with 2017 Census Bureau import data showed $3.9 billion in flat-panel TV imports, and $1.4 billion in vehicle imports from China.
USTR has scheduled a May 15 public hearing on the tariffs, which were announced as the result of an investigation under Section 301 of the 1974 U.S. Trade Act.
China ran a $375 billion goods trade surplus with the United States in 2017, a figure that Trump has demanded be cut by $100 billion.