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Companies bracing for China's retaliation in tariffs dispute

AP  |  Beijing 

Companies were bracing Monday for how might retaliate against Donald Trump's escalation of a fight over technology and trade that threatens to disrupt a Chinese economic recovery.

Regulators have threatened "necessary countermeasures" for Trump's tariff hikes Friday on USD 200 billion of Chinese imports. But three days later, in a break with previous tit-for-tat penalties that were imposed immediately, had yet to announce what it might do.

A foreign ministry said Monday that he had no details about Chinese plans or high-level contacts since negotiations ended Friday without a deal.

"We are determined and capable of safeguarding our legitimate rights and interests," said the spokesman,

"We hope the will meet halfway to address each other's legitimate concerns."

is running out of U.S. imports it could penalize due to the lopsided U.S.-Chinese trade balance. Regulators have been targeting American companies in by slowing down customs clearance for shipments and processing of business licenses.

Officials appeared to be studying the potential impact on China's economy before picking their next steps, said Jake Parker, vice of the U.S.-China Business Council, an industry group.

He said officials might be worried companies may shift operations out of China in response to "aggressive retaliatory actions." "I assume this goes fairly high within before retaliatory actions are settled upon," said Parker.

Forecasters warned that Friday's hikes could disrupt a Chinese recovery that appeared to be gaining traction. Growth in the world's second-largest economy held steady at 6.4% over a year earlier in the latest quarter, supported by higher government spending and

The tensions "raise fresh doubts about this recovery path," economists Robin Xing, and said in a report.

The latest U.S. charges could knock 0.5 percentage points off annual Chinese economic growth, economists said.

They said that loss could widen to 1 percentage point if both sides extend penalties to all of each other's exports. That would pull annual growth below 6%, raising the risk of politically dangerous job losses.

The latest talks ended with no word of progress after accused of trying to backtrack on earlier commitments.

The chief Chinese envoy, Liu He, told state TV the remaining issues had to do with principles and "we will make no concessions on matters of principle." Trump started raising tariffs last July over complaints China steals or pressures companies to hand over technology.

wants Beijing to roll back plans for government-led creation of Chinese global competitors in robotics and other technology that its trading partners say violate its free-trade commitments.

A stumbling block has been U.S. insistence on an enforcement mechanism with penalties to ensure Beijing carries out its commitments. Economists say Chinese leaders probably reject that as a violation of Chinese sovereignty.

Trump's surprise May 5 tariff announcement renewed anxiety in financial markets about global economic growth.

On Monday, China's stock market benchmark fell 1.2pc and Tokyo's main index lost 0.7pc. Markets in and also declined.

Friday's increase raised U.S. duties on USD 200 billion of Chinese goods to 25pc from 10pc. Importers of another USD 50 billion of Chinese goods already were paying 25pc. Beijing matched Trump's earlier 25pc tariff on USD 50 billion of American goods. It imposed 10pc charges on $60 billion of imports but left other goods unaffected, possibly out of concern for Chinese companies that depend on U.S. technology and components.

economists said they believed Beijing might raise tariffs on USD 60 billion of U.S. goods and cancel an agreement to postpone a duty increase on imported American autos while the two sides negotiated.

"The risk of a full blown trade war has materially increased," they said in a report.

The analysts said the next escalation could come in as little as one month as U.S. regulators prepare to follow through on Trump's threat to extend penalty tariffs to all Chinese goods.

tried to reassure Chinese companies and consumers the ruling has the resources and to respond.

"There is nothing to be afraid of," said the party newspaper

"The U.S.-instigated trade war against China is just a hurdle in China's development process. It is no big deal."

Makers of clothing and furniture already were shifting production to due to rising Chinese wages. Business groups say that exodus is accelerating as some other companies shift production of goods for the U.S. market to other countries.

Economists say more might follow to reduce the risk of American tariff hikes.

The abruptness of Trump's May 5 announcement made companies see doing business in China as more uncertain, said Parker of the

No matter what and Beijing decide, "there is an enormous risk in the background that tariffs could come back into play at any moment," he said.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Mon, May 13 2019. 14:45 IST