China 'underestimated' Trump, a key adviser says

Trump proposes new tariffs on $200B worth of Chinese goods

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"Of course a far-reaching trade war would be detrimental for everyone in the end, but mainly the countries whose growth heavily depends on foreign trade", said Commerzbank Currency Strategist Thu Lan Nguyen in Frankfurt.

The United States has now imposed tariffs on up to $450bn in Chinese goods, out of a total of $500bn. If Intel makes a chip at its USA plants in Oregon, Arizona or New Mexico, then sends it to China for low-level assembly work and then brings it back so it can be put into a device manufactured in the United States, the chip would get hit by the tariff.

Trump said he hoped the US could work out a trade agreement with Canada, saying the two countries had a good relationship but that Americans were being taken advantage of.

"After the legal process is complete, these tariffs will go into effect if China refuses to change its practices, and also if it insists on going forward with the new tariffs that it has recently announced", he said in a statement on Monday.

"I have to point out that USA remarks confused right with wrong and made irresponsible accusations against China to cover up its unilateral and protectionist moves", Chinese Foreign Ministry spokesman Geng Shuang said when asked to comment on Pompeo's statement.

"If the USA becomes irrational and issues this list, China will have no choice but to adopt strong countermeasures of the same amount and quality", the ministry statement said.

"Therefore, today, I directed the United States Trade Representative to identify $200 billion worth of Chinese goods for additional tariffs at a rate of 10 percent".

Leading the fall in Hong Kong was Chinese telecom giant ZTE, plunging almost 26% and shedding almost two-thirds of its value since striking a deal with the Trump administration to lift a ban on using critical United States components. Those penalties are scheduled to take effect next month and will likely be followed by Chinese countermeasures. "The problem is, such a tactic is unlikely to work with China", said Kota Hirayama, senior emerging markets economist at SMBC Nikko Securities Inc in Tokyo. "China's government will step up an already intensive effort to determine whether Trump has the political strength to carry out his threats, while working to maximize pressure on U.S. interests to force him to back down and accept a compromise".

China had offered to ramp up purchases of American goods by $70 billion to help cut its yawning trade surplus with the United States, whereas Trump had demanded a $200 billion deficit cut.

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"Trade between our nations, however, has been very unfair, for a very long time".

Kim briefed Chinese President Xi Jinping on his recent talks with Trump in Singapore, underscoring China's role in the effort to unwind North Korea's nuclear program.

Sixty-two percent of companies in all industries said they had less favourable market access in China than their Chinese competitors had in Europe.

"This impact appears to remain manageable", said Kuijs. "It's an unprecedented level of larceny".

In response, China has threatened what it called "comprehensive measures", raising the risk that it would target operations of major American companies in China. "This is predatory economics 101".

In the first round of penalties announced by both nations, to take effect July 6, the USA plans to impose tariffs of 25 per cent on $34 billion of Chinese imports, such as construction machinery, aerospace and power generation equipment.

Beijing responded by saying it would hit 659 United States goods worth $50bn with a similar tax. "However, much of this growth has been achieved in significant part through aggressive acts, policies, and practices that fall outside of global norms and rules (collectively, "economic aggression")", the White House report said in its opening.

Gary Cohn, Trump's former top economic adviser, said last week that a "tariff battle" could result in price inflation and consumer debt - "historic ingredients for an economic slowdown".

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