Friday, August 23, 2019

Trump Demands That American Companies ‘Start Looking for an Alternative to China’



By  
Alan Rappeport 
and 
Keith Bradsher
  • Aug. 23, 2019
  • Updated 4:14 p.m. ET
 WASHINGTON — President Trump, angered by Beijing’s decision on Friday to retaliate against his next round of tariffs and furious at his Federal Reserve chair for not doing more to juice the economy, demanded that American companies stop doing business with China and warned of additional retaliation.
In a series of angry Twitter posts, Mr. Trump called for American companies to cut ties with Beijing and said the United States would be economically stronger without China. The president also called the Fed chair, Jerome H. Powell, an “enemy” of the United States and compared him to President Xi Jinping of China, his trade nemesis, after Mr. Powell declined to signal an imminent cut in interest rates.
“My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?” the president tweeted.
Behind the tirade was the growing reality that the type of trade war Mr. Trump once called “easy to win” is proving to be more difficult and economically damaging than the president envisioned. Mr. Trump’s stiff tariffs on Chinese goods have been met with reciprocal levies, hurting American farmers and companies and contributing to a global slowdown.
On Friday, China said it would increase tariffs on $75 billion worth of American goods, including crude oil, automobiles and farm products in response to Mr. Trump’s plan to tax another $300 billion worth of Chinese goods in September and December.

Mr. Trump’s tweets unnerved investors, who worry that the trade war between the world’s two largest economies will drag down global growth. Stocks fell sharply on Friday, with the S&P 500 closing down more than 2.5 percent. The Dow Jones industrial average was down slightly more than 2 percent and the technology-heavy Nasdaq index fell 3 percent.
Mr. Powell said on Friday that the Fed could push through another interest rate cut if the economy weakened further but suggested that the central bank’s ability to limit economic damage from the president’s trade war was constrained.

Talks between the two nations have largely stalled, with China refusing to accede to the United States’ trade demands. As economic damage from the yearlong dispute mounts, Mr. Trump has taken a scattershot approach to spurring the economy: clamoring for the Fed to cut interest rates, teasing the idea of tax cuts and, on Friday, commanding American companies to do his bidding against China.
“Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing our companies HOME and making your products in the USA,” he tweeted, adding “We don’t need China and, frankly, would be far better off without them.”

Mr. Trump also said he was directing the United States Postal Service and private American companies like FedEx, Amazon and U.P.S. to search packages from China for the opioid fentanyl and refuse delivery.
It was not yet clear on Friday how Mr. Trump planned to carry out his demands, including ordering companies to begin seeking alternatives to producing in China. Mr. Trump has routinely urged American companies to stop doing business in China and has viewed his tariffs as a way to prod them to move production. While some companies have begun looking for other places to locate their supply chains, including Vietnam, many businesses — particularly smaller ones — say such a move is costly, time-consuming and could put them out of business.
Business groups reacted with deep concern and pushed back against the notion that American companies would sever ties with China at Mr. Trump’s request.

“U.S. companies have been ambassadors for positive changes to the Chinese economy that continue to benefit both our people,” said Myron Brilliant, the head of international affairs at the U.S. Chamber of Commerce. “While we share the president’s frustration, we believe that continued constructive engagement is the right way forward.”
Retailers, which are bracing for pain from Mr. Trump’s next round of tariffs, said the president’s demands would hurt, not help, American businesses and the economy.

“It is unrealistic for American retailers to move out of the world’s second largest economy, as 95 percent of the world’s consumers live outside our borders,” said David French, the senior vice president for government affairs at the National Retail Federation.

Chinese imports of American-made cars are among the goods China plans to target if the trade war escalates.CreditLam Yik Fei for The New York Times
By Friday afternoon, Mr. Trump’s next steps were unclear. The president hastily assembled his top trade advisers at the White House — including Treasury Secretary Steven Mnuchin, who joined by telephone — to settle on a response. The president was not aware that China’s retaliation was coming and was angry about being blindsided, according to people familiar with the matter.

Mr. Trump’s tweets on Friday caught most of his advisers and staff by surprise, and prompted alarm. Some of Mr. Trump’s advisers privately expressed concern that the ferocity of Mr. Trump’s response could derail the negotiations permanently and could unsettle supporters during an election year.
Mr. Trump’s advisers believe he is being urged on by Peter Navarro, a trade adviser who has been the main proponent of continuing down an antagonistic path with China. Mr. Navarro tried to play down the escalation on Fox Business Network, saying Beijing’s response was to be expected and would only galvanize support in the United States for Mr. Trump’s tough approach to China.

“I just think that the way that China is reacting to this whole thing is simply reinforcing America’s perception of China as a bad actor,” said Mr. Navarro, who is considered the biggest China hawk in the administration. “When China tries to bully us, that only strengthens our resolve.”
Mr. Navarro said the new tariffs that China was imposing were just a sliver of the overall United States economy and that they should not affect growth. He said that actions by central banks to cut interest rates were more significant to the global economy than the trade dispute between the United States and China.
He added that he expected the negotiations between the United States and China would resume in September.

David Dollar, a China expert at the Brookings Institution, said that Mr. Trump’s anger appeared disproportionate to the relatively modest retaliation from China that should have been anticipated. However, he said it was notable that Mr. Trump’s order to companies appeared to take a page from Beijing’s playbook.

“It’s definitely outside the realm of a free-market economy,” Mr. Dollar said of the call for businesses to cut ties with China. “It’s typical of the kind of thing we complain about from China and other economies where a government intervenes outside the rule of law.” 

Mr. Trump’s anger was compounded by remarks from Mr. Powell, who did not suggest the Fed would undertake the kind of big interest rate cut that the president had been pressing for. Mr. Powell said that while another rate cut was possible, it was not guaranteed. And he suggested that the central bank’s ability to keep the economic damage from the president’s trade war at bay was somewhat limited.
“While monetary policy is a powerful tool that works to support consumer spending, business investment, and public confidence, it cannot provide a settled rule book for international trade,” said Mr. Powell, who spoke in Jackson, Wyo., at the Federal Reserve Bank of Kansas City’s annual symposium.

The State Council Tariff Commission in Beijing said that the tariffs were a response to Mr. Trump’s threat to impose new tariffs by Sept. 1. Mr. Trump had initially said he would impose 10 percent tariffs on $300 billion in Chinese-made goods on that date, essentially targeting everything that the United States buys from China that has not already been hit by previous rounds of tariffs. He later delayed more than half of the latest round of tariffs until Dec. 15 to avoid hitting American pocketbooks during the holiday shopping season. A few tariffs were scrapped entirely.
Both sides have a lot at stake. Recent market moves have signaled that many investors expect the American economy to slide into recession, with the trade war as a major reason.

The Chinese government has its own worries. The country’s economic growth is already slowing. Though Beijing keeps tight control over China’s economy and still has a lot of financial firepower at its disposal to help growth, a huge and growing debt problem has limited its options.

The disproportionate scale of the proposed retaliation — tariffs on $75 billion in American goods meant to counter tariffs on $300 billion in Chinese goods — reflects how unbalanced trade has become between the two countries. The dollar value of goods targeted by China tends to be much smaller than the value targeted by the White House for the simple reason that China exports far more to the United States than it imports.

Mark Williams, the chief Asia economist at Capital Economics, wrote in a note to clients that the structuring of China’s latest salvo reflected its limitations in waging such a protracted trade fight with the United States, noting that it was mostly taxing goods that it could easily source elsewhere.
“China is running into the limits of how much it can inflict pain on the U.S. without also hurting itself,” Mr. Williams said.

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