April 9, 2018 / 7:43 AM / 15 days ago

China blames U.S. for trade frictions, but Trump voices optimism

BOAO, China/WASHINGTON (Reuters) - China stepped up its attacks on the Trump administration on Monday over billions of dollars worth of threatened tariffs, but U.S. President Donald Trump again voiced optimism the two sides would hammer out a trade deal.

A worker walks past aluminium wires at a plant inside an industrial park in Binzhou, Shandong province, China April 7, 2018. Picture taken April 7, 2018. China Daily via REUTERS

The comments from both countries followed a week of escalating tariff threats sparked by U.S. frustration with China’s trade and intellectual property policies, worrying financial markets over potential damage to global growth.

“When we do a deal with China, which, probably, we will - if we don’t, they’ll have to pay pretty high taxes to do business with our country,” Trump said during a White House Cabinet meeting with reporters present.

On Sunday, Trump predicted China would take down its trade barriers, and said: Taxes will become reciprocal and a deal will be made on intellectual property.”

Vowing to shield U.S. farmers from Chinese retaliation, Trump said on Monday: “If, during the course of a negotiation, they want to hit the farmers because they think that hits me, I wouldn’t say that’s nice.”

Trump was referring to China’s threats to impose tariffs on U.S. soybeans, frozen beef and other agricultural goods, which have already pushed down prices for those commodities.

U.S. shares recovered somewhat on Monday amid the toned-down U.S. rhetoric on China along with comments from White House economic adviser Larry Kudlow that Trump was “amenable” to enlisting the support of Europe and Japan on China trade issues..

Although Trump administration officials have said back-channel communications were continuing, no formal meetings have been scheduled between top U.S. and Chinese officials.

“As I understand it, there is no plan whatsoever for the two sides to talk,” said Ruan Zongze, a former Chinese diplomat now with the China Institute of International Studies, a think tank affiliated with the Foreign Ministry.

Speaking at the Chinese embassy in Washington, Ruan said: “Washington underestimates China’s resolve and determination.”

A worker works at a furnace at a steel plant of Dalian Special Steel Co Ltd in Dalian, Liaoning province, China April 8, 2018. Picture taken April 8, 2018. REUTERS/Stringer

In China, state researchers and media talked down the likely impact of U.S. trade measures on the world’s second largest economy and described the Trump administration’s posturing on trade as the product of an “anxiety disorder”.

“Under the current circumstances, both sides even more cannot have talks on these issues,” Foreign Ministry spokesman Geng Shuang told reporters at a regular news briefing.

The trade frictions were “entirely at the provocation of the United States”, Geng added.

Beijing did not want to fight a trade war, but was not afraid of one, Vice Commerce Minister Qian Keming told the Boao Forum for Asia in the southern province of Hainan.

Chinese President Xi Jinping is due to deliver remarks at the Boao conference on Tuesday that will be his first public reaction to the tariff standoff.

‘GREAT WALL OF DENIAL’

The U.S. move last week to threaten China with tariffs on $50 billion in Chinese goods was aimed at forcing Beijing to address what Washington says is deeply entrenched theft of U.S. intellectual property and forced technology transfers from U.S. companies.

Beijing charges that Washington is the aggressor and spurring global protectionism, although China’s trading partners have complained for years that it abuses World Trade Organization rules and practices unfair industrial policies that lock foreign companies out of crucial sectors with the intent of creating domestic champions.

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After repeated pledges by Beijing to open up sectors such as financial services have yielded little substantial progress, Trump has said the United States will no longer let China take advantage of it on trade.

“China’s reaction to Mr. Trump’s legitimate defence of the American homeland has been a Great Wall of denial — despite incontrovertible evidence of Beijing’s illicit and protectionist behaviours,” White House trade adviser Peter Navarro said in a commentary in the Financial Times on Monday.

Chinese officials deny such charges, and responded within hours of Trump’s announcement of tariffs with their own proposed commensurate duties. The move prompted Trump last week to threaten tariffs on an additional $100 billion in Chinese goods, which have yet to be identified.

U.S. Agriculture Secretary Sonny Perdue said on Monday that the United States would protect farmers from the “the brunt of Chinese retaliation as we defend our own interests.”

Speaking to the National Rural Electric Cooperative Association in Washington, Perdue declined to provide any details on how that would be achieved.

“It wouldn’t be very prudent to give away our playbook and let China know exactly what our plans are to mitigate what they threaten,” he said.

Trump added that U.S. farmers, many in states that voted for him in 2016, “are great patriots. They understand that they’re doing this for the country. And we’ll make it up to them.”

TREASURIES: THE ‘NUCLEAR OPTION’

Discussion of the trade dispute also touched on the possibility of China leveraging its massive holdings of U.S. government debt, which has been dubbed the “nuclear option.”

Zhang Yuyan, a researcher at the Chinese Academy of Social Sciences, a government think tank, said China was unlikely to sell off its holdings of U.S. Treasuries as a tactic in the trade dispute.

“On whether China will reduce its foreign exchange reserves, how policymakers think, I don’t know. I personally believe this possibility is very small,” Zhang said on Sunday in Boao.

China is evaluating the potential impact of a gradual yuan depreciation as a tool in the trade dispute, Bloomberg News reported on Monday, citing people familiar with the matter, although it said the analysis did not mean officials would carry out the move.

The yuan has been nearly unchanged against the dollar over the past month as the trade dispute heated up and has appreciated about 3 percent so far this year. [CNY/]

Reporting by Kevin Yao and Lindsay Dunsmuir; Additional reporting by Christian Shepherd, Andrew Galbraith and Stella Qiu in Beijing and Boao; David Lawder, Lindsay Dunsmuir and David Brunnstrom in Washington; Writing by Elias Glenn, Michael Martina and David Lawder; Editing by Kim Coghill and Peter Cooney

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