US imposes sanctions on China, stoking fears of trade war

As the Trump administration slapped trade sanctions on China, including restrictions on investment and tariffs on $50bn worth of products, fears of a trade war heightened.

A foreign ministry spokeswoman said China would “take all legal measures to protect our interest” if the US took “actions that will harm both China and itself”.

The US announcement marked the end of a seven-month investigation into tactics China has used to challenge US supremacy in technology, including hacking commercial secrets and demanding US companies hand over trade secrets in exchange for access to the Chinese market.

Speaking at the White House, Donald Trump said the imposition of tariffs was part of an effort for fairness, noting that China imposes a 25% tariff on US cars while the US only has a 2.5% duty on Chinese cars. “They charge us, we charge the same thing,” said Trump.

White House aide Peter Navarro told reporters on a conference call “administrations before us and this administration have tried to work with the Chinese but with the Chinese talk is not cheap, it’s very expensive. Finally the president decided we needed to move forward.”

The US was “strategically defending itself [from] … economic aggression”, he said.

The Trump administration argues that years of negotiations have failed to produce results. Dozens of industry groups, however, sent a letter to the president warning that “the imposition of sweeping tariffs would trigger a chain reaction of negative consequences for the US economy, provoking retaliation; stifling US agriculture, goods, and services exports; and raising costs for businesses and consumers”.

US stock markets reacted negatively on Thursday, with the Dow dropping more than 300 points. Caterpillar, 3M and Boeing – all with significant exposure to China – were among the biggest fallers.

At one point, the index was down 500 points. It recovered on news that the tariffs would be subject to a period of consultation. The administration will ask the Office of the United States Trade Representative to come up with a list of products in the next 15 days. There will then be a 30-day comment period.

Fears of a trade war between the two biggest economies in the world were also reflected in the bond market, with US 10-year treasury bonds posting their biggest one-day drop in yields since September. Bank and tech stocks also fell. Facebook was down almost 3% on top of an 8.5% fall over the first three days of the week.

“The biggest thing is the unknown about what the Chinese are going to do in response,” said Ian Winer, a securities analyst at Wedbush. “The tariffs were not worse than what people were expecting, but based on the industries they are going to slap the tariffs on, you’re going to see some reciprocal action from Beijing. If that’s the case there are a lot of global companies that could potentially hurt.”

But, Winer added, concern over a US-China trade dispute will hinge on inflationary pressures on consumer prices. “That’s the bigger issue. If China does something, and all of a sudden stuff that people are buying in Walmart and other places costs more, that’s not what the economy needs right now.”

On Thursday Hua Chunying, a foreign ministry spokeswoman, said imports of US soya beans, airplanes, cotton and cars could be viewed as examples of “unequal” trade. The US also “refuses to export what China wants”, Hua said, possibly referring to restrictions on technology and military sales.

“We are firmly against unilateralism and protectionism,” Hua said. “China will not watch our legal interest being harmed. China will take all legal measures to protect our interest. We hope the US can understand the core of mutual benefits, do not take actions that will harm both China and itself.”

Trump’s move comes as the US prepares to impose tariffs of 25% on steel and 10% on aluminium, sanctions that are meant to hit China. The US trade representative, Robert Lighthizer, said on Thursday that Canada, Mexico, Europe, Australia, Argentina, Brazil and South Korea would for now be exempt.

Trump campaigned on promises to bring down America’s trade deficit – $566bn last year – by rewriting agreements and cracking down on what he called abusive practices. In January, he imposed tariffs on solar panels and washing machines. Then he unveiled the steel and aluminium tariffs, saying reliance on imported metals jeopardised US national security.

To target China, Trump has dusted off a cold war weapon: section 301 of the US Trade Act of 1974, which lets the president unilaterally impose tariffs. It was meant for a world in which much commerce was not covered by trade agreements. With the arrival in 1995 of the World Trade Organization, it fell largely into disuse.

The Chinese premier, Li Keqiang, this week urged Washington to act “rationally” and promised to open China to more foreign products and investment.

Mary Lovely, a Syracuse University economist and senior fellow at the Peterson Institute for International Economics, said: “China has been trying to cool things down for weeks. They have offered concessions. Nothing seems to cool the fire. I fear they will take a hard line now that their efforts have been rebuffed … China cannot appear subservient to the US.”

Hua said China hoped “that two sides can sit and talk calmly. On the principle of equality and mutual respect, we seek ways to guarantee mutual benefits through constructive dialogues and discussion.”

But she said: “China will not just sit and watch its legal interest be harmed. China will take all necessary measures to uphold its interest.”