China retaliates against Trump, imposes tariffs and blacklists of American companies

Minutes after President Trump's latest tariffs came into effect, the Chinese government said on Tuesday it imposed its own extensive tariffs on food imported from the U.S. and would essentially stop selling to 15 U.S. companies.

The Chinese Treasury Department has a tariff rate of 15% on U.S. chicken, wheat, corn and cotton imports and 10% on other foods, ranging from soy to dairy products. In addition, the Department of Commerce said that unless otherwise specified, 15 U.S. companies will no longer purchase products from China, including Skydio, the largest UAV manufacturer in the United States and a supplier of U.S. military and emergency services.

China's National People's Congress spokesman Lou Qinjian blamed the United States for violating the World Trade Organization's free trade rules. “By imposing unilateral tariffs, the United States violated WTO rules and undermined the security and stability of global industries and supply chains,” he said.

Since taking office in January, Mr. Trump has now had a 20% tariff mark on almost all Chinese goods. He announced 10% tariffs on February 4 and made another round on Tuesday. Mr. Trump also raised 25% tariffs in Mexico and Canada on Tuesday after a month of delays.

China responded to February’s tariffs, immediately announcing that it would start collecting, six days later, from the U.S. to additional tariffs on liquefied natural gas, coal and agricultural machinery. But these tariffs have suffered only one-tenth of the U.S. exports to China, which is much narrower than Mr. Trump's overall tariffs.

China's actions on Tuesday were much wider. China is the top overseas market for American farmers, and has had a considerable impact on the prices and demand of the Midwest commodity markets.

By targeting food imports, Beijing repeated its response to the tariffs imposed by Mr. Trump during his first term. China signed tariffs on U.S. soybeans in 2018 and transferred most of its purchases to Brazil.

But this strategy backfired at the time: Mr. Trump's response was to impose more tariffs on Chinese goods. Since the United States imports four times that of China, China quickly runs out of U.S. goods and may impose tariffs. American farmers have had some success in finding other crop markets.

In 2018, China's tariffs had less political influence in the United States than Beijing's leaders hoped. In November 2018, the three highest soybean exporters held elections for Senate seats, but there was little evidence that voters took Chinese action against Mr. Trump or the Republican Party. All three states have seen Democratic senators replaced Republicans that year because social issues are more attractive to many voters than trade disputes.

However, China has potential trade weapons that go far beyond food tariffs. In early February, Beijing imposed restrictions on the export of certain key minerals used in the production of certain semiconductor and other technical products.

Blocking key materials from reaching the United States is a strategy called supply chain warfare that poses great risks to China. Beijing is already working to attract foreign investment. China's cabinet publicly shifts its targets this winter to trying to attract more foreign investment to stabilize its targets. China's leaders also said that trying to strengthen the country's domestic economy has been suppressed by the consequences of a devastating property slowdown, which is a top priority.

Beijing may make it more difficult for U.S. companies to do business in China, but it may also hurt foreign investment. In addition to effectively preventing 15 companies from buying Chinese goods, China's Ministry of Commerce added an “unreliable entity list” of 10 U.S. companies on Tuesday to prevent them from doing any business in China.

Many of the companies China punished on Tuesday were military contractors. However, the Ministry of Commerce also blocked a biotech company called Illumina from doing business in the country. It accused Illumina, based in San Diego, of violating market trading rules and discriminating against Chinese companies.

Chinese market regulators said in early February that they had conducted an antitrust investigation into Google after Mr. Trump imposed tariffs this month. Google has been blocked from China's internet for more than a decade, but the move could undermine transactions between companies and Chinese companies.

Mr. Lu, spokesman of the National People's Congress, demonstrated his country's emerging strategy by calling for close trade relations with Europe.

“China and Europe can complement each other’s strengths and achieve mutual benefit in many areas of cooperation,” he said in a press conference before opening at the weekly session of the Chinese legislature on Wednesday.

But Europe has its own trade dispute with China, especially on electric vehicles. European politicians and business leaders have expressed widespread concern about how to respond to China's expected export flooding this year, and China has begun a far-reaching factory construction plan.

According to UN data, China's rapid rise since 2000 to the outstanding effect of global manufacturing, with one-third of its output largely dependent on the price of the United States in global industrial production. European countries have been vigilant about closing factories and rely on China's low-cost imports.

Mr. Trump's tariffs on China during his second term are much faster than his first term. In 2018 and 2019, he signed up to 25% tariffs on imports worth about $300 billion a year. He then reached a trade agreement with China in January 2020 to impose a 25% tariff on many industrial supplies, while reducing the tariffs on certain consumer products to 7.5% and eliminating some other tariffs.

By comparison, Mr. Trump now imposes a 20% tariff on all goods imported by the U.S. from China, worth about $440 billion a year. These include some categories he omitted in the first semester, such as smartphones.

Trump's actions this year have raised the average tariff on affected Chinese imports to 39% – by comparison, just 3% before he took office in 2017. Except for China, Canada and Mexico, the U.S. imposes an average tax rate of about 3% on most trading partners.

China's average tariffs on goods in most parts of the world are twice as high as that of goods imported from the United States.

During Mr. Trump's first term, the Chinese government reduced taxes collected from exporters in the country. This gives them room to lower prices and at least offset their customer tariffs, including many small U.S. businesses as well as large retailers such as Walmart, Amazon and Home Depot.

As another way around tariffs, some Chinese exporters have moved the final assembly of their products to countries such as Vietnam, Thailand or Mexico, while retaining production of the core components of China. Mr. Trump is now trying to stop some trade through Mexico, which critics see as a backdoor to enter the U.S. market.

Many Chinese exporters resort to the so-called De Minimis exception to tariffs: dividing the goods into many parcels, each with a value of less than $800. Then, each cargo is exempt from tariffs and customs processing fees and is mainly omitted from customs inspections and U.S. import data.

Now, at least $1 of every $6 imported from China comes through these minimum shipping.

In early February, Mr. Trump issued an order briefly halting the minimum tariff exemption on Chinese, Mexican and Canadian goods. As a pile of parcels accumulate rapidly at U.S. airports, he delayed orders for shipping from China until procedures could be made to process them and delayed them for a month, importing De Minimis from Canada and Mexico. On Sunday, he once again postponed the action to import from Canada and Mexico.

Alexandra Stevenson Beijing report and Chris Buckley and Amy Chang Chien Taipei's report. Li, you Contributed to the research.