China Accuses US Of Fabricating Trade Data, Warns "Trade War Would Be A Disaster"

While Canada and Mexico and soon other US "allies" have so far been spared the brunt of the Trump import tariffs on aluminum and steel imports as a result of "indefinite" exemptions for the duration of Nafta negotiations, China - the country that is the target of Peter Navarro's trade scorn - has not been so lucky, and the result has been an outpouring of increasingly hostile jawboning by Beijing, which while taking the Trump gambit in stride so far, is clearly concerned how far Trump could ratchet up protectionist measures.

As a result, on Sunday China said that it will not initiate a trade war with the United States, but vowed to defend its national interests in the face of growing American protectionism.

"There are no winners in a trade war, and it would bring disaster to our two countries as well as the rest of the world," China's Minister of Commerce Zhong Shan said at a briefing on the sidelines of the country's annual parliamentary session according to AP.

"China does not wish to fight a trade war, nor will China initiate a trade war, but we can handle any challenge and will resolutely defend the interests of our country and our people," he said.

Shan's statement was Beijing's latest official remark on "problems in Sino-U.S. economic trade and cooperation," alluding to Trump's plan to impose tariffs on imported steel and aluminum.

To be sure, Chinese leaders have threatened in the past to retaliate against raised trade barriers, but have yet to take direct action following Trump's announcement. Earlier in the week, China’s Foreign Minister, Wang Yi, vowed a "justified and necessary response" to Washington’s initiative, but that too has yet to take any concrete shape.

Prior to signing the order, Trump urged Beijing to come up with a concrete proposal to reduce their trade deficit with the United States, although according to experts Trump tweeted a wrong number and meant for a $100 billion reduction in the US-Chinese trade deficit, rather than the $1 billion number he tweeted.

“China has been asked to develop a plan for the year of a One Billion Dollar reduction in their massive Trade Deficit with the United States,” Trump tweeted. “Our relationship with China has been a very good one, and we look forward to seeing what ideas they come back with. We must act soon!”

Meanwhile, in the latest unexpected twist, Shan said that according to Chinese researchers, the U.S. has been overstating its trade deficit with China by about 20 percent every year. This is surprising as traditionally it has been China that has been accused of fabricating its trade data to make its economy appear strong that it actually is; Beijing turning the tables on Washington is therefore a first, and threatens to bring far greater scrutiny to China's trade numbers which on numerous occasions have been revealed to be completely made up.

Shan gave no details on how this figure was reached, but the U.S. and Chinese governments generally report widely differing trade figures because Beijing counts only the first port to which goods go instead of their final destination.

The U.S. reported a $375 billion deficit with China last year, so a 20% reduction would still be among the largest trade gaps that the U.S. has with any country, and would almost fill Trump's desired $100 billion reduction.

Zhong blamed the trade imbalance in part on controls over U.S. high-tech exports to China, repeating a Chinese claim that Washington could narrow its trade deficit if it allowed China to buy more "dual use" technology such as supercomputers and advanced materials with military applications.

Translation: if only the US would allow China to reverse-engineer its latest technological achievements, Beijing would be far more eager to grant Trump's his wish, although in light of the recent fallout from the Broadcom-Qualcomm merger attempt, which now has the CFIUS is involved, that is hardly in the cards. It also explains the official US response, that such sales make up only a few percent of the deficit while possibly threatening American national security.

To be sure, the Trump tariffs are only the latest shot across the bow in trade wars that originally started under the Obama administration, as shown in the table below:

Furthermore, several weeks prior, the Trump administration approved higher tariffs on Chinese-made washing machines, solar modules and some other goods, prompting Beijing to accuse Washington of disrupting global trade regulation by taking action under U.S. law instead of through the World Trade Organization.

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In an attempt to ease trade tensions, Liu He - the top economic advisor to President Xi Jinping - visited Washington earlier this month in an attempt to smooth strained ties. Zhong said China would continue to "relax market access" to China and said China would also attach greater importance to intellectual property right, another point of tension with the U.S.

China absorbed $136.3 billion in foreign investment last year. The country has long been among the top global destinations for investment, but foreign enthusiasm is cooling. Surveys by business groups show companies are shifting emphasis to other Asian economies seen as more profitable or less restrictive.

"We have noticed that some foreign-funded businesses have complained about China's investment environment," Zhong said. "The fact that they have complaints indicates that they are still paying attention to China's development and have confidence in China's market."

That... or they are merely complaining because, well, it's kinda impossible to invest in a centrally-planned economy in which the massive state support for local enterprises has led to an tide of undead, zombie companies which recently prompted the IMF highlight "The Walking Debt: Resolving China’s Zombies."

Meanwhile, for all the posturing and rhetoric, Trump actually appears to be right in his demands for "fair" trade treatment by Beijing, which has a documented history of lying about what it will do as opposed to what it actually does: as a confirmation, watch how CNBC's Eunice Yoon was "Harassed" By Police After Exposing China's "Dirty" Steel Secret.

CNBC reporter escorted out of 'steel-free' town in China from CNBC.

For now, however, it appears that China's response has been that if the US will mitigate its trade terms with Beijing, it will allow US investors to invest in its various ponzi schemes. We doubt that the Trump administration will find that particular offer even remotely appealing.