Senior official says China is ‘not afraid’ of a trade war as Beijing signals potential restrictions on rare-earth exports

This article is more than 1 year old

This article is more than 1 year old

Provoking trade disputes is “naked economic terrorism“, a senior Chinese diplomat said on Thursday, ramping up the rhetoric against the US amid a bitter trade war that shows no signs of ending soon.

Zhang Hanhui, China’s vice foreign minister told reporters in Beijing China opposed the use of “big sticks” such as trade sanctions, tariffs and protectionism.

“We oppose a trade war but are not afraid of a trade war. This kind of deliberately provoking trade disputes is naked economic terrorism, economic homicide, economic bullying,” Zhang said, when asked about the trade war with the US.

The comments came after financial markets around the world suffered when Beijing signalled a readiness to strike back at Washington in their escalating trade war by restricting exports of rare-earth elements.

Wall Street recorded steep losses on Wednesday as the Dow Jones slumped to the lowest level in almost four months, losing about 221 points to trade at 25,126. The S&P 500 index also fell to a two-month low, sliding by 19 points to 2,783.

Trade tensions between Washington and Beijing escalated sharply this month after the Trump administration accused China of having “reneged” on its previous promises to make structural changes to its economic practices.

Washington later increased tariffs to up to 25% on $200bn of Chinese goods, prompting Beijing to retaliate.

Q&A What is the China-US trade war about? Show Hide The roots of the dispute come from US president Donald Trump’s “America first” project to protect the US’ position as the world’s leading economy, while encouraging businesses to hire more workers in the US and to manufacture their products there. Trump complains of a large trade deficit with China, which he views as a symbol of the US’s decline as a manufacturing powerhouse. Chinese imports to the US totalled $539.5bn last year, while $120.3bn was sold the other way – leaving a trade deficit of $419.2bn. The president has accused Beijing of “unfair” trade policies, including allowing the theft of US companies’ intellectual property. The threat of import tariffs on Chinese goods is being used as leverage in talks where Trump is seeking changes to Beijing’s trade policy. Tariffs have been imposed by Washington on some Chinese goods sold in the US for about a year. They came on top of broader tariffs used by Trump that have hit China and other trading partners such as the EU, Canada and Mexico, on goods including steel and aluminium. In May 2019 the US president further ratcheted up existing import tariffs of 10% on $200bn (£153bn) of Chinese goods sold in the US to 25%, hitting everything on a long list of products. Trump has previously warned that 25% tariffs could be slapped on a further $325bn of goods – which would mean all Chinese imports being covered by tariffs. However, talks in November 2019 aimed at easing tensions were welcomed as the beginning of a thaw in the trade war between the two nations. Richard Partington and Jasper Jolly

Global markets fall as China prepares to hit back at US in trade war Read more

Everyone loses in a trade war, he added, addressing a briefing on Chinese president Xi Jinping’s state visit to Russia next week, where he will meet Vladimir Putin and speak at a major investor forum in St Petersburg.

“This trade clash will have a serious negative effect on global economic development and recovery,” Zhang added. “We will definitely properly deal with all external challenges, do our own thing well, develop our economy, and continue to raise the living standards of our two peoples,” he said, referring to China and Russia.

“At the same time, we have the confidence, resolve and ability to safeguard our country’s sovereignty, security, respect and security and development interests.”

From combative missives in state media and patriotic fervour on social media, to a mobilisation of ambassadors around the world to get its message out, China has intensified its criticism of Washington since the US this month moved to increase tariffs on Chinese imports and blacklisted Huawei.

Q&A Who pays Trump's tariffs, China or US customers and companies? Show Hide US President Donald Trump Trump has often repeated that China pays for US tariffs on its goods. 'We have billions of dollars coming into our treasury from China. We never had 10 cents coming into our treasury; now we have billions coming in' he said on 24 January 2019. On 5 May he tweeted: 'For 10 months, China has been paying Tariffs to the USA.' But that is not how tariffs work. China's government and companies in China do not pay tariffs directly. Tariffs are a tax on imports. They are paid by US-registered firms to US customs for the goods they import into the United States. Importers often pass the costs of tariffs on to customers - manufacturers and consumers in the United States - by raising their prices. Chinese suppliers do shoulder some of the cost of US tariffs in indirect ways. Exporters sometimes, for instance, are forced to offer US importers a discount to help defray the costs of higher US duties. Chinese companies might also lose business if US importers find another tariff-free source of the same goods outside China. White House economic adviser Larry Kudlow has acknowledged that 'both sides will suffer on this' contradicting the president.

On Thursday, a broadcaster from Chinese state television and a Fox Business host staged an unprecedented live debate about the China-US frictions on the US cable network.

Over the past two weeks, China has hinted it might use its dominant position as an exporter of rare earths to the US as leverage in the trade war. Rare earths are a group of 17 chemical elements used in everything from high-tech consumer electronics to military equipment.

On Thursday, the state-run China Daily newspaper said “it would be naive to think that China does not have other countermeasures apart from rare earths to hand”.

“As Chinese officials have reiterated, they have a ‘tool box’ large enough to fix any problem that may arise as trade tensions escalate, and they are ready to fight back ‘at any cost’,” it said in an editorial.

China has consistently rebuffed US complaints about lack of access to its economy for foreign companies, forced technology transfers and intellectual property protection, and repeatedly promised further economic reforms.

Speaking at a separate forum in Beijing, Wang Zhaoxing, a vice chairman of China’s banking and insurance regulator, said the past four decades of the country’s economic reforms had shown that “openness brings progress, shutting off brings backwardness”.

“It is undeniable that the current economic globalisation has indeed encountered some new problems and new challenges,” Wang said. “However, the solution is not to return to protectionism and unilateralism.”

Reuters contributed to this article