White House tries to tamp down trade war fears as China retaliates

White House officials moved quickly on Wednesday to calm fears of a potential trade war with China, saying the administration’s proposed tariffs were a “threat” that would ultimately help, not hurt, the United States economy, hours after China said it would punish American products with similar levies.

The administration’s insistence that a trade war was not imminent came as the United States and China traded tit-for-tat penalties that caused wild swings in stock markets from Hong Kong to New York. Led by more audacious leaders than either country has had in decades, China and the United States are now locked in a perilous game of chicken, with the possibility to derail the global economic recovery, disrupt international supply chains and destabilize the huge yet debt-laden Chinese economy.

White House officials reiterated on Wednesday that China must stop the “unfair” trading practices President Trump believes have disadvantaged American companies and workers, but they held out the possibility that tariffs on $50 billion worth of Chinese goods outlined on Tuesday might never go into effect.

“There’s no trade war here,” Larry Kudlow, Trump’s new top economic adviser, said in an interview on Fox Business Network. He described the threat of tariffs as “just the first proposal” in a process that would involve negotiations and back-channel talks. 

“I understand the stock market’s anxiety,” he said. “But on the other hand, don’t overreact.”

Behind the scenes, however, top officials remained split over the administration’s approach as the United States and China move into a period of high-stakes negotiations. That includes how far to go in punishing China and the types of concessions the White House should accept to avoid a protracted and damaging trade war.

People familiar with the negotiations say Steven Mnuchin, the Treasury secretary, and Wilbur Ross, the commerce secretary, have at times argued for more dialogue with the Chinese and quicker concessions that would help diminish the trade deficit — the gap between what China ships to the United States and what America ships in the other direction. Other top trade advisers, including longtime China critics like Robert Lighthizer and Peter Navarro, have taken a tougher stance, arguing that these changes would do little to address the mercantilist and protectionist trade policies China has adopted for decades.

Trump’s advisers said the president remains resolute and views the pugilistic approach as the only way to force China to end two decades of industrial policies that have hollowed out American manufacturing and resulted in a ballooning trade deficit.

On Wednesday, Mr. Trump suggested in a tweet that he saw no reason to back down, since the United States was already on the losing end of trade with China.

“We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the US,” he wrote. “Now we have a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion. We cannot let this continue!”

He added in another tweet, “When you’re already $500 Billion DOWN, you can’t lose!”

It remains unclear whether China will bend to the pressure and make significant changes to its economy — or whether the White House strategy will instead tip the two nations into a trade war that could harm both countries. Producers of American goods like soybeans, pork, automobiles and semiconductors depend on access to the Chinese market both for exports and production and say they are fearful about a conflict.

©2018 The New York Times News Service