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China blames U.S. for rising trade war tensions

China may restrict U.S. access to rare earths
  • Beijing says it has kept its word during 11 rounds of talks with the U.S. and will honor commitments if a deal is reached.
  • It accused the U.S. of backtracking three times over the course of the talks by introducing new tariffs and other conditions.
  • The report appears to be a bid to bolster China's arguments and justify its position in what looks to be a protracted dispute.

Beijing - China fired back at the U.S. Sunday over the two nations' trade dispute, issuing a report that blamed the conflict on the Trump administration but refrained from escalating the trade war. The report from the Cabinet spokesman's office said China won't back down on "major issues of principle," but it offered no sense of whether or how the world's second-largest economy might retaliate against U.S. tariffs on goods manufactured in China and exported to the U.S.

The report said China has kept its word throughout 11 rounds of talks and will honor its commitments if a trade agreement is reached. It accused the U.S. of backtracking three times over the course of the talks by introducing new tariffs and other conditions beyond what was agreed on.

"But the more the U.S. government is offered, the more it wants," it said.  America's negotiators were "resorting to intimidation and coercion," according to the report. "A country's sovereignty and dignity must be respected, and any agreement reached by the two sides must be based on equality and mutual benefit."

The report, delivered at a Sunday morning news conference, appears to be a bid to shore up China's arguments and justify its position in the face of what looks to be a protracted dispute. Over recent days, China has been mobilizing its representatives abroad to sell its position with foreign audiences, while the domestic propaganda apparatus has been working overtime to convince the public of the righteousness of the government's stance.

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Linda Lim, a professor at Ross School of Business at the University of Michigan, said the report doesn't represent an escalation on China's part, but rather reiterates the government's position in a clear and measured way that leaves the door open for negotiations. "They threw the ball back into the U.S. court," she said.

She added that the report is a public relations win for China's government at a time when U.S. President Donald Trump's trade policy is antagonizing other U.S. trading partners, most recently Mexico. Mr. Trump announced last week that he would impose 5% tariffs on Mexican imports starting June 10 if the Mexicans don't do more to stop the surge of Central American migrants across the southern U.S. border.

Height Securities said in a Monday note that "we view this white paper not as a signal that China is taking a more cooperative tone, but rather as confirmation that China is unwilling to make the type of major, unilateral concession demanded by the Trump administration."

The U.S. has accused China of stealing trade secrets and forcing technology transfers. The Trump administration has imposed 25% tariffs on $250 billion in Chinese imports and is planning to tax the $300 billion in imports that have so far been spared. It also escalated the stakes this month by putting Chinese telecom giant Huawei on a blacklist that effectively bars U.S. companies from supplying it with computer chips, software and other components without government approval.

Beijing responded by imposing tariffs on $60 billion worth of U.S. products, which went into effect Saturday. It also retaliated against the U.S. blacklisting of Huawei by announcing Friday that it will establish its own list of "unreliable entities" consisting of foreign businesses, corporations and individuals.

Wang Shouwen, China's vice commerce minister and deputy international trade representative, said China would issue more detailed information on the unreliable entities list soon but that it was aimed at enterprises that "violated market principles" and cut supplies of components to Chinese businesses for noncommercial reasons.

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China's statement that it intends to publish such a list follows additional measures last week that deepened the bite of U.S. sanctions imposed on Huawei in mid-May. Several leading U.S.-based global technology standards-setting groups announced restrictions on Huawei's participation in their activities under U.S. Commerce Department rules that bar the sale and transfer of U.S. technology to Huawei without government approval.

"Given the upcoming 'unreliable list' and the announced investigation [of FedEx], there may be concerns among foreign companies in China about such scrutiny," Goldman Sachs said in a report Monday morning. It noted that American companies aren't the only targets "since third country companies could become involved as well when they have relationships with companies in either the US or China." Goldman noted that "Given the risk that investment sentiment could be affected by such concerns, we would expect the Chinese government to act cautiously."

Wang also repeated suggestions that China could restrict the export of exotic minerals known as rare earths that are widely used in electric cars and cellphones. Foremost among them is lithium, the main component in modern batteries. The threat to use China's rich supply of rare earths as leverage in the conflict has contributed to sharp losses in U.S. stocks and sliding long-term bond yields.

"If some countries use China's rare earth metals to produce products to contain China's development, this is unacceptable by standards of both minds and hearts," Wang said.

"Forceful measures"

Sunday's report lays out China's argument for blaming Washington for the frictions as well as the costs to both sides. It said China has room for fiscal policy changes to maintain the health of its economy amid the dispute.

Wang said China had been forced to "take forceful measures in response" to U.S. actions and denied China had backtracked on its earlier commitments. He said the U.S. had made unacceptable demands, including on tariffs and compulsory requirements that infringed on Chinese sovereignty. "You give them an inch, they take a yard," he said.

Mr. Trump has touted the tariff increases as a way of reducing China's trade surplus with the U.S., which hit a staggering $379 billion last year. However, Wang questioned how much China was actually benefiting from its surplus, saying a joint Chinese-U.S. study showed the U.S. figure could be inflated by as much as 20%.

He also said many of those exports were produced by foreign companies operating in China and that Chinese firms often pocketed only a relatively meager fee for assembling. Subtracting the U.S. surplus in services trade with China, the actual surplus came to just $152.6 billion last year, Wang said.

The U.S. deficit with China has actually been worsening since tariffs were first imposed, Wang said, pointing to a 50% decline in soybean exports to China and a drop-off in U.S. auto sales in the country. The average U.S. family, meanwhile, will pay an additional $831 for consumer items over the year due to the higher tariffs, he said, while the dispute's impact on businesses could end up costing 2.23 million U.S. jobs overall.

Said Wang: "That shows that the deepening trade restrictions hurt U.S. workers."