China promises 'necessary response' to US tariffs as trade war fears grow

The prospect of a trade war between China and the United States has increased after Beijing’s foreign minister said it would make a “necessary response” in the event of Donald Trump introducing punitive tariffs on steel and aluminium imports.

The US president was expected to approve the 25% levy on steel and 10% on aluminium imports this week, possibly as early as Thursday.

He says they are needed to counter overseas operators, especially from China, who are undercutting US companies and destroying American jobs.

The surprise announcement of the tariff plan last week caused stock markets to fall sharply as investors feared a trade war.

A possible 30-day exemption for Mexico and Canada and some other countries based on national security eased market fears during Asian trading on Thursday. The Nikkei in Japan, where steelmakers could be hard hit, was up 0.5% in afternoon trade. Stocks indexes in Australia, Hong Kong and Seoul were also in the black.

However, the comments on Thursday by China’s foreign minister, Wang Yi, were a sign that Beijing would not take the introduction of tariffs lying down.

Wang, speaking on the sidelines of an annual meeting of China’s parliament, said China and the United States did not have to be rivals, and history showed that trade wars were not the correct way to resolve problems.

“Especially given today’s globalisation, choosing a trade war is a mistaken prescription. The outcome will only be harmful,” the foreign minister said.

“China would have to make a justified and necessary response,” he said.

Wang said China had a long way to go on its path of modernisation, and that it “will not and need not displace the United States”.

Ric Spooner of CMC Markets in Sydney said: “Even if there is a relatively favourable outcome on the detail of steel tariffs, the wider issue of the potential for broader tariffs aimed at China be a background concern for markets and a source of potential volatility over coming months.”

Trump still faces growing opposition to the tariffs from congressional Republicans and business worried about their potential impact on the economy. His top economic adviser, Gary Cohn, quit this week after opposing the tariff plan.

But he appeared to brush opposition aside on Wednesday with a tweets demanding that China lay out plans for reducing its trade surplus with the US.

China ran a record goods trade surplus with the United States last year of $375.2bn.

Trade tensions between the world’s two largest economies have risen since Trump took office in 2017, and although China only accounts for a small fraction of U.S. steel imports, its industrial expansion has helped produce a global glut of steel that has driven down prices.

Trump is also considering potential trade sanctions against China under a “section 301” investigation into its intellectual property practices and pressure on foreign companies for technology transfers.

Diplomatic and U.S. business sources say the United States has all but frozen a formal mechanism for talks on commercial disputes with China because it is not satisfied it has met its promises to ease market restrictions.