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China warns it could fire back with tariffs of $60 billion on US goods

Chinese President Xi Jinping applauds ahead of delivering a speech at the Boao Forum for Asia Annual Conference in Boao, China, on April 10, 2018. MUST CREDIT: Bloomberg photo by Qilai Shen.

BEIJING - The Chinese government threatened Friday to dramatically escalate its economic standoff with President Donald Trump, vowing to impose tariffs on $60 billion in U.S. goods if the White House does not halt pending penalties on Chinese imports.

The Chinese Commerce Ministry said in a statement it could add duties of 5, 10, 20 or 25 percent on 5,207 types of U.S. imports, while warning it could adopt further countermeasures at any time.

Saying it was "forced to act," Beijing cast the move as a response to Trump's threat on Wednesday to raise a proposed tariff rate on $200 billion worth of Chinese goods from 10 percent to 25 percent.

White House officials had hoped Trump's latest threat would frighten Chinese officials into negotiations, where Trump aims to secure more favorable terms for U.S. manufacturers in one of the world's largest marketplaces.

But Beijing appears, instead, to be digging in with more retaliatory measures that experts believe could hurt the economies of both countries.

China is threatening to impose the tariffs on a wide range of products, including chemicals, plastics and leather goods, according to business groups representing those industries.

The escalating conflict between the White House and China shows no signs of abating. On Friday, Larry Kudlow, Trump's top economic adviser, warned China against pushing the president any further. He said the Chinese economy was not strong enough to withstand a lengthy fight.

"The Chinese had better not underestimate the determination of President Trump to follow through and seek zero tariffs and nontariff barriers," Kudlow said during an interview on Fox Business Network. The Chinese "are not in good economic shape."

The U.S. economy is heavily reliant on importing more than $500 billion in goods each year from China. Democrats and Republicans have complained that China's ability to sell goods in the United States at a lower cost than U.S. companies has put thousands of American firms out of business, costing manufacturing jobs and hurting the U.S. economy.

The dynamic has proved difficult to change, given U.S. consumers' reliance on Chinese goods.

Trump believes that the gulf between how much China exports to the United States and how much the United States exports to China reflects unfair trade practices, which he has vowed to address through penalties on imports and a range of other measures.

There are signs that his approach is not working the way he intended.

The U.S. government reported Friday that the gap between how much the United States imports from China and how much it exports reached a record level in the first six months of 2018.

Business groups have alleged that the trade threats lobbed by both countries are hurting consumers and businesses but doing little to address the root causes of the imbalance, particularly as both countries have halted formal discussions.

Friday's threat is the latest in a long list of actions and threats taken by both countries this year. Trump has imposed tariffs on Chinese steel and aluminum imports and another $34 billion in goods, mostly industrial equipment. China responded with tariffs on $34 billion in U.S. goods, including a wide range of agricultural products.

That led Trump to begin planning new tariffs on $200 billion in additional Chinese goods, triggering China's new plan to penalize imports on $60 billion in U.S. goods.

The threats and counterthreats have stirred increasing unease from U.S. business and farm groups, which argue that they are the ones losing money and business based on all the new restrictions. To try to quell outrage from farmers, Trump last week announced $12 billion in emergency aid, including direct payments, for farmers who are expected to lose orders based on increased tariffs from China.

But this move did not satisfy many Republican lawmakers, who said it was unclear how the White House planned to ultimately resolve its differences with Beijing.

And it is not clear whether normal diplomatic channels are working, either. Friday's new threat from Beijing came just after Secretary of State Mike Pompeo met with Chinese Foreign Minister Wang Yi in Singapore. But White House officials said formal talks between the countries have mostly lapsed as the economic restrictions have hardened.

Lu Xiang, an expert on U.S.-China trade at the Chinese Academy of Social Sciences in Beijing, said the tensions have reached a "critical moment."

"The trade war is a tactic by Trump, but if it eventually evolves into a strategic confrontation, the result will undoubtedly be disastrous," he said.

Relations between the White House and China have soured in recent weeks after both sides had hoped that negotiations might settle differences.

Trump has accused China of stealing U.S. intellectual property, manipulating its own currency and taking other steps that give its firms an unfair competitive advantage over U.S. companies. In fact, one reason the White House intensified its tariff threats this week is because some administration officials believe that China has intentionally allowed its currency to weaken in recent months, making it cheaper for its companies to export goods to the United States.

Trump asked U.S. Trade Representative Robert E. Lighthizer in June to draft a plan for a 10 percent tariff on $200 billion in Chinese imports. China cannot match that dollar for dollar, but it vowed to fight back using "qualitative and quantitative" measures.

The trade battle has business leaders on both sides worried about where this will end up.

"I sense that we're seeing a hardening of attitudes on both sides," said Jacob Parker, vice president of China relations at the U.S. China Business Council. It's a "race to the bottom that will harm American consumers, farmers and U.S. industry."

Parker added: "Enough is enough. It's time to stop imposing nonconstitutive tariff action and resolve the very real issues."

In an effort to soften relations, Trump directed Commerce Secretary Wilbur Ross to ease restrictions on ZTE Corp., a major Chinese telecommunications company that had been penalized for violating U.S. sanctions against Iran and North Korea and then lying to U.S. investigators about its actions. But that move, made in June, appears to have done little to help.

Last month, China blocked American chipmaker Qualcomm from buying Dutch firm NXP in a regulatory step that some White House officials had hoped would be lifted.

This article was written by Emily Rauhala and Damian Paletta, reporters for The Washington Post. Luna Lin, Amanda Erickson and Heather Long contributed to this report.

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