China Braces For Trade War With US, Accuses Washington Of "Repeatedly Abusing" WTO Rules

The White House is preparing to unveil $50 billion worth of tariffs on more than 100 different types of Chinese goods Thursday at 12:30 pm ET - what President Trump has characterized as a response to China's larcenous Intellectual Property practices (and, quite possibly, a preemptive strike as China prepares to launch its petroyuan contracts next week).

This is how UBS' Chief US Economic Paul Donovan summarized what is coming:

US President Trump is expected to announce a tax increase for US consumers who have dared to purchase goods that have been partially made in China. There is likely to be a large US flag, suitably photogenic and smiling American workers and a dramatic signature. And selective tariffs, investment restrictions and visa limits.

US Trade Representative Lighthizer said that an "algorithm" was used to maximize the pain to China and minimize the pain to US consumers (this acknowledges that there is pain for US consumers). Trade data (presumably the algorithm input) is complex and often out of date. Saying the word "algorithm" in an authoritative voice does not magically reduce the risks.

The tariffs will be imposed under Section 301 of the 1974 US Trade Act and focus on Chinese high-tech goods. There will also be restrictions on Chinese investments in the US, said US Trade Representative Robert Lighthizer. China's apparel industry may also be hit. For years, China has forced US companies to turn over valuable source code and other intellectual property as the price of gaining entry to one of the world's "most lucrative developing markets." But Trump and his protectionist allies have argued that this is a blatant violation of WTO rules.


Back in August, Trump ordered the Commerce Department to launch an investigation into Chinese trade practices under Section 301 - which was regularly invoked by the Reagan administration to punish Japanese exporters.

Meanwhile, as China prepares for a full-fledged "trade war" with Washington, the leaders of the world's second-largest economy are seeking to shore up support for their position from other nations and world trade bodies. China has zeroed in on US export caps as one reason for the widening trade deficit between the world's two largest economies.

Chinese Foreign Ministry spokeswoman Hua Chunying said it was unfair to criticize China's trade practices if the United States won’t sell to China what it wants to buy, referring to US export controls on some high-tech products, per Reuters.

"How many soybeans should China buy that are equal to one Boeing aircraft? Or, if China buys a certain number of Boeing aircraft shReutersould the U.S. buy an equal number of C919s?" Hua said, mentioning China’s new self-developed passenger jet.

However, China still hopes it can hold constructive talks with the United States in a spirit of mutual respect to seek a win-win solution, she added.

US agricultural exports to China stood at $19.6 billion last year, with soybean shipments accounting for $12.4 billion. Chinese penalties on US soybeans will especially hurt Iowa, a state that backed Trump in the 2016 presidential elections and is home to US Ambassador to China Terry Branstad.

Boeing could also find itself in China's crosshairs, particularly as the country's aerospace program is seeking to develop the C919 as a domestic rival to Boeing's jets.

Boeing, which has the biggest market share in China of any aerospace company, said last year it expects China to buy more than 7,000 Boeing jets worth some $1.1 trillion over the 20 years between now and 2036.

Chinese officials repeated threats that their retaliation would be swift.

"With regards to the Section 301 investigation, China has expressed its position on many occasions that we resolutely oppose this type of unilateral and protectionist action by the U.S.," the Commerce Ministry said on Thursday.

"China will not sit idly by while legitimate rights and interests are hurt. We must take all necessary measures to firmly defend our rights and interests."

Jacob Parker, Beijing-based vice president of China operations at the US-China Business Council, said the group wanted to know what action the US administration wants China to take to improve protection for intellectual property, and over forced technology transfer.

Parker said China needs to adopt a tougher deterrent against counterfeiting and IP theft, and do away with joint venture and business licensing requirements that can be used to mandate technology transfers to gain market access.

"It’s really important for them to lay that out so that we have a strategy going forward and it’s not just tariffs for tariffs’ sake."

China celebrated a WTO decision, released Wednesday, declaring Obama-era anti-subsidy tariffs illegal under WTO rules as validation of its claims:.

"The Chinese side never wants to fight a trade war with anybody, but if we are forced to, we will not hide from it," Foreign Ministry spokeswoman Hua Chunying warned on Wednesday. Beijing will "definitely take firm and necessary countermeasures to defend its legal rights," she said, as quoted by China’s Global Times.

Meanwhile, the Commerce Ministry said in a statement that Vice-Minister Wang Shouwen had slammed Trump’s new wave of protectionism at an informal meeting of ministers from 50 World Trade Organization (WTO) member-states in India earlier this week.

"Trade restriction measures will not only hurt the global trade order but also cause serious damage to the multilateral trade system," Wang said, urging all countries to "support the global multilateral trade system and defend the authority and effectiveness of WTO rules."

The Commerce ministry welcomed Wednesday’s WTO ruling against Obama-era anti-subsidy tariffs on Chinese goods. The decision "proves that the US side has violated WTO rules, repeatedly abused trade remedy measures, which has seriously damaged the fair and just nature of the international trade environment and weakened the stability of the multilateral trading system," the statement said.

China's shift to a consumption-based economy has made it less dependent on exports - so the $50 billion tariffs imposed by the US likely won't have much of an impact. But Moody’s Investors Service said the impact would be far greater if the US significantly expands tariffs and throws in broad-ranging protectionist measures.

If that comes to pass, China could retaliate against US companies, cancelling orders for Boeing planes and nixing a pending deal for Qualcomm to acquire NXP Semiconductors. It could also foil Tesla's push to build a factory on the mainland.

But as China hopes an amicable solution might be worked out, the boost to Trump's popularity since announcing the steel and aluminum tariffs (which are incredibly popular among ordinary working Americans, even as they've turned pundits and "experts" apoplectic with rage) has emboldened him to seek a more aggressive tack.

And now we wait for Trump's official launch of trade war with China just after noon.