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Trump Orders U.S. Businesses to Find Alternative to China -- 5th Update

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08/23/2019 | 01:41pm EDT

By Chao Deng in Beijing and William Mauldin in Washington

President Trump said U.S. companies were "hereby ordered" to start looking for alternatives to doing business in China after Beijing said it would impose tariffs on $75 billion worth of additional U.S. products.

"Our Country has lost, stupidly, Trillions of Dollars with China over many years," Mr. Trump wrote in a series of tweets. "They have stolen our Intellectual Property at a rate of Hundreds of Billions of Dollars a year, & they want to continue. I won't let that happen! We don't need China and, frankly, would be far better off without them."

Mr. Trump's comments came in response to China's plan, laid out Friday, to impose tariffs of 5% and 10% on almost all the remaining U.S. imports on which it has yet to impose punitive taxes, including vehicles and car parts, in retaliation against U.S. moves to slap punitive tariffs on an additional $300 billion of Chinese goods.

The president demanded that U.S. companies "immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA."

The sharp escalation in the prolonged trade conflict between the two countries comes weeks after Mr. Trump said he impose the fresh tariffs on Chinese goods and Beijing had vowed to retaliate. China's new levies on U.S. goods are set to go into effect on Sept. 1 and Dec. 15, timed with the next two rounds of U.S. tariffs on Chinese goods. Chinese tariffs on U.S. automotive goods are set to begin Dec. 15.

Mr. Trump also said he would require shipping companies to block shipments of fentanyl from China and elsewhere. The president has blamed Beijing for not following through on a commitment in earlier trade negotiations to curb flows into the U.S. of the addictive and potentially lethal painkiller.

The White House didn't immediately respond to questions about the president's demand that shipping companies "SEARCH FOR & REFUSE" deliveries of fentanyl or offer further details on his demand that U.S. companies find alternatives to China.

Mr. Trump said on Twitter he would formally respond to China's announcement later in the day.

Mr. Trump met Friday morning with his trade team in the Oval Office, a White House official said. Officials in the meeting included trade adviser Peter Navarro, U.S. Trade Representative Robert Lighthizer, Treasury Secretary Steven Mnuchin and director of the National Economic Council Lawrence Kudlow.

"I think he's pushing as hard as he can to get the Chinese to take what we're doing seriously," said Sen. Lindsey Graham (R., S.C.), a close ally of the president who said he spoke with Mr. Trump about China on Thursday night. On Mr. Trump's ordering U.S. companies to leave China, Mr. Graham said: "I think that's typical Trump, kind of over the top. He can't order anybody and he knows that."

Items China plans to impose tariffs on include agricultural products, apparel, chemicals and textiles.

Some major car companies will be hit hard by the increase in tariffs, particularly Tesla Inc. and Ford Motor Co., as well as Germany's BMW AG and Daimler AG's Mercedes-Benz. These companies build a significant number of vehicles in the U.S. for export to China -- mostly premium models -- and a higher tariff could force them to raise prices.

In all, auto makers exported roughly 230,100 U.S.-built cars to China last year, according to forecasting firm LMC Automotive.

The Dow Jones Industrial Average dropped more than 450 points, or 1.7%, ending what had been a relatively quiet several days for markets. Yields on U.S. government bonds also tumbled, as did commodities markets, such as oil and copper, that are sensitive to the two countries' trade battle.

Shares of retailers and semiconductor companies that manufacture parts and materials in China were among the hardest hit. Mattel Inc. and Hasbro Inc. dropped more than 6%, while Nvidia Corp. and Advanced Micro Devices Inc. slumped about 5%.

Federal Reserve Chairman Jerome Powell on Friday offered his most forceful warning of the risks emanating from the administration's trade policy. "We have much experience in addressing typical macroeconomic developments under" the Fed's policy-making framework, he said in a speech, "but fitting trade policy uncertainty into this framework is a new challenge."

Mr. Navarro, the White House trade adviser, played down the broader economic impact in an interview on Fox Business Network.

"The risk here for China, when it does things like this, is simply to galvanize support even more" for President Trump in the U.S., Mr. Navarro said, adding that $75 billion "is not something for the stock market to worry about" when compared with the $21 trillion U.S. economy.

A spokeswoman for Mr. Lighthizer didn't immediately reply to a request for comment on the tariffs.

"Everyone knew this was coming, which is why we should have come into this fight with allies and a discernible strategy, instead of letting America's workers and consumers bear the brunt of Donald Trump's erratic trade war," said Sen. Ron Wyden of Oregon, the top Democrat on the Senate Finance Committee. "Meanwhile, China's market is more closed than ever to American goods."

People following the trade dispute said officials in Beijing were likely working out responses that would minimize damage to its economy, while gauging whether the Trump administration would move forward with its tariffs. Officials in Beijing have grown more wary in deciding how to react to the U.S., with Mr. Trump surprising them with unpredictable moves, analysts say.

"China wants to show it won't be conciliatory on the tariffs issue, that they're willing to fight to the end," said Li-Gang Liu, an economist at Citigroup.

At the same time, Mr. Liu said Beijing could be trying to impose lower tariffs on products that it finds harder to substitute. Among the list of items tariffed at 5% are aircraft, although Beijing limited application to small jets and helicopters, excluding the likes of Boeing jumbo jets.

Some items on its tariff list, such as soybeans, beef and pork, were on previous lists of goods that already had tariffs imposed. China imported only $120 billion in U.S. goods last year, but the list of U.S. products on which it has imposed or announced tariffs now totals $185 billion.

Economists say China is having a harder time retaliating in proportion to the U.S.'s moves, since it imports fewer products from the country. That is one reason it is hitting U.S.-made cars with 25% tariffs this time around; Beijing had imposed, then suspended, this set of tariffs last year.

Still, China has yet to announce what names are on its "unreliable entity list," Beijing's response to a U.S. blacklist of foreign firms that American firms are barred from dealing with. China's commerce ministry said Thursday it would announce the list in the near future, without elaborating.

Soon after President Trump announced his plans for fresh tariffs set for Sept. 1, Beijing responded by officially announcing the freezing of purchases of U.S. agricultural products and letting its currency drop to its lowest level in a decade. A weaker yuan makes Chinese exports cheaper.

With concerns mounting over the impact the escalating trade fight would have on businesses and consumers ahead of the holiday shopping season, the Trump administration scaled back some tariffs on Chinese goods last week.

In that move, Mr. Trump sidelined tariffs on smartphones, laptops, toys and other Chinese imports -- valued last year at $156 billion -- that were set to take effect on Sept. 1. Those tariffs are still set to kick in Dec. 15.

Meanwhile, the U.S. will be collecting tariffs beginning on Sept. 1 on about $361 billion in Chinese imports -- the levies on the $111 billion worth of annual imports that starts Sept. 1, plus previous tariffs on $250 billion in Chinese goods.

The tariffs come just as the two sides had planned for another round of high-level trade talks. Beijing remains interested in a deal that would remove U.S. punitive tariffs, analysts say, and has left open whether its officials would travel to Washington in September for trade talks as previously agreed.

"Now that China has imposed tariffs, it can go to the negotiations," said Wang Huiyao, founder of Beijing-based think tank Center for China and Globalization. "If China hadn't, it would look like they're still under the gun of the U.S."

Mr. Navarro said Friday the high-level trade talks between U.S. and Chinese officials were still expected to resume in September.

Some business leaders on Friday warned that the rising tensions with China are hurting the economy.

"Nobody wins a trade war, and the continued tit-for-tat escalation between the U.S. and China is putting significant strain on the U.S. economy, raising costs, undermining investment, and roiling markets," said Myron Brilliant, head of international affairs at the U.S. Chamber of Commerce.

--Liyan Qi in Beijing, Trefor Moss in Shanghai, Alex Leary in Washington and Ben Foldy and Nora Naughton in Detroit contributed to this article.

Write to Chao Deng at Chao.Deng@wsj.com and William Mauldin at william.mauldin@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
DJ INDUSTRIAL -0.59% 26935.07 Delayed Quote.16.15%
NASDAQ 100 -0.99% 7823.553294 Delayed Quote.24.83%
NASDAQ COMP. -0.80% 8117.674437 Delayed Quote.23.32%
S&P 500 -0.49% 2992.07 Delayed Quote.19.36%
US DOLLAR / CHINESE YUAN RENMINBI (USD/CNY) -0.06% 7.0908 Delayed Quote.3.21%
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