China: You'd better believe we'll retaliate against US tariffs

Will he or won’t he? Now that Gary Cohn has hit the road, Donald Trump’s predilection toward trade wars has few naysayers among the inner circle. So far the steel and aluminum tariffs have forced trading partners to renegotiate agreements in hope of scoring exemptions. With that track record of success — at least for now — Trump turned his attention to China, imposing significant tariffs on their goods as expected:

President Donald Trump on Thursday directed his top trade adviser to level an estimated $50 billion in new tariffs against Chinese goods, taking his latest action against what he sees as unfair trade practices even as markets remain skittish about a possible trade war.

“The bottom line here,” top White House trade adviser Peter Navarro told reporters Thursday morning, is “what the U.S. is doing is simply strategically defending itself against this particular form of economic aggression” from China. …

U.S. Trade Representative Robert Lighthizer will have 15 days to release the list of Chinese goods and sectors that will be targeted, followed by a 30-day public comment period. A senior White House official didn’t specify what goods might be targeted, but assured it was a “long list.”

One has to wonder what Larry Kudlow is telling Trump right now. Less than three weeks ago, the CNBC economist warned that tariffs are nothing more than taxes on consumers. Trump then hired him to replace Cohn, who tried telling the president the exact same thing. Either Kudlow has converted to a protectionist after a lifetime of free-trade support, or he’s wondering how he found himself in this situation.

His former colleague Jim Cramer still thinks Kudlow’s opposed to tariffs:

CNBC’s Jim Cramer has watched the market parse what longtime CNBC host Larry Kudlow’s new role as director of the National Economic Council will mean for U.S. trade policy.

“But if you want to know where Larry stands on the actual issues, all you need to do is listen to the conference call from FedEx last night,” the “Mad Money” host said on Wednesday. “In all of the years I worked with Larry on ‘Kudlow & Cramer,’ no executive came closer to his views than Fred Smith, the founder, chairman and CEO of FedEx.” …

What Cramer learned from the call was that FedEx would oppose restrictions to trade and support the free exchange of goods and services, which Kudlow has championed over the years.

“The question is which Larry Kudlow are we going to get, the one with fealty to Fred Smith’s vision or the one to Donald Trump’s vision?” Cramer said. “It’s an open question, and I think this clash of ideas will define the next big move for, actually, the stock market. If the pro-free-trade faction prevails, I think we do go higher. If they lose, I think we go lower.”

So far, Kudlow’s been awfully quiet on the long-rumored action on China. China itself, on the other hand, has not been quiet. Beijing tried warning Trump today not to provoke a trade war:

Beijing has renewed a warning that it will retaliate if President Donald Trump goes through with plans to slap new tariffs on Chinese goods worth billions of dollars.

“China will certainly take all necessary measures to resolutely defend its legitimate rights and interests,” if the United States imposes new restrictions, the Ministry of Commerce said in a statement on Thursday. …

China has repeatedly said that it doesn’t want a trade war but warned that it would take “firm and necessary” countermeasures if necessary.

“It’s unrealistic and unreasonable to demand complete equality in trade,” Chinese foreign ministry spokeswoman Hua Chunying told reporters on Thursday. “We hope that both sides can sit down and talk calmly.”

China’s leadership already has a plan in place to make it as politically costly to Trump as possible:

The Trump administration has said the planned policies against China are punishment for decades of intellectual-property theft and pressure on U.S. businesses to hand over technology.

Beijing denies forcing foreign companies to transfer technology. It is readying retaliatory tariffs against U.S. exports of soybeans, sorghum and live hogs, targeting products from Farm Belt states that supported President Donald Trump, according to people with knowledge of the policies. …

“China absolutely won’t sit back and allow its legitimate rights and interests to be harmed and will take all necessary measures to protect” them, a Commerce Ministry statement said. A Foreign Ministry spokeswoman criticized the White House’s rhetoric, particularly the labeling of Chinese trade practices as “economic aggression,” calling such remarks “irresponsible.”

If all tariffs are taxes, as Kudlow argued, then Trump’s about to hike taxes on the rural voters that put him in office. It might not last long, if Trump manages to force China into negotiations as he has with the EU, Canada, and Mexico on steel and aluminum, but the timing for the GOP could not be worse. They’re running on the success of the tax cuts and the expansion of the economy, especially outside the urban cores that got most of the benefits from globalization in the past. A hit to pocketbooks in the summertime among the voters they need to energize for turnout in November could very well prove fatal to hopes of retaining the House, and might damage Republican efforts to strengthen their majority in the Senate, too.

Bear in mind that these tariffs aren’t instantaneous. The clock has started on the application of their application, a process which takes 45 days in total before they begin. Trump’s a gambler, and he seems to be betting that China will come to the table to head off the tariffs. We’ll see just how far he wants to double down with Xi Jinping, and how much Xi will be willing to talk rather than react.