BEIJING/SHANGHAI: China urged the US on Friday to "pull back from the brink" as President Donald Trump's plans for tariffs on up to $60 billion in Chinese goods brought the world's two largest economies closer to a trade war.
The escalating tensions between Beijing and Washington sent shivers through financial markets, as investors foresaw dire consequences for the global economy if trade barriers start going up.
Mr Trump is planning to impose the tariffs over what his administration says is misappropriation of US intellectual property. A probe was launched last year under Section 301 of the 1974 US Trade Act.
Responding the US import tariffs on steel and aluminium that went into effect on Friday, though announced by Trump earlier this month, China unveiled plans to levy additional duties on up to $3 billion of US imports including fresh fruit, wine and nuts.
"China doesn't hope to be in a trade war, but is not afraid of engaging in one," the Chinese commerce ministry said in a statement on Friday.
"China hopes the United States will pull back from the brink, make prudent decisions, and avoid dragging bilateral trade relations to a dangerous place."
In a presidential memorandum signed by Mr Trump on Thursday, there will be a 30-day consultation period that only starts once a list of Chinese goods is published.
That effectively creates room for potential talks to address Mr Trump's allegations on intellectual property theft and forced technology transfers.
Mr Trump said he views the Chinese as "a friend", and both sides are in the midst of negotiations.
The inevitable fall in demand from a full-blown trade war would spell trouble for all the economies supplying the United States and China.
Feeling the chill, MSCI's broadest index of Asia-Pacific shares outside Japan dropped 2.4%, tracking a large overnight fall in Wall Street shares, but perceived safe havens such as government bonds gained.
"The upshot is that today's [US] tariffs amount to no more than a slap on the wrist for China," Mark Williams, chief Asia economist at Capital Economics, wrote in a note. "China won't change its ways. Worries about escalation therefore won't go away."
Mr Williams estimated that the $506 billion that China exported to the US drove around 2.5% of its total gross domestic product, and the $50-60 billion targeted by the US tariffs contributed just around 0.25%.
Mr Trump, however, appears intent on fulfilling election campaign promises to reduce China's huge trade surplus with the US.
"The American and Chinese governments should resolve existing trade frictions in a way that averts a trade war and promotes open markets and fair economic exchange," said AmCham Shanghai president Kenneth Jarrett."
"As our members increasingly tell us, however, the current trading relationship is neither open nor fair. It is time for China to take remedial action and show that it is a true partner in global trade."
'Drawing its bow'
Alarm over Mr Trump's protectionist leanings mounted earlier this month after he imposed hefty import tariffs on steel and aluminium under Section 232 of the 1962 US Trade Expansion Act, which allows safeguards based on "national security".
That measure had not targeted Chinese imports alone.
On Friday, the Chinese commerce ministry said China will levy duties on up to $3 billion of US imports in response to the steel and aluminium tariffs, which appeared modest by comparison to the US penalties.
"With the restrained response, China hopes Trump can realise his errors and mend his ways," said Xu Hongcai, deputy chief economist at the China Centre for International Economic Exchanges, a Beijing think tank.
"If we really want to counter, the strongest response would be to target soybean and automobiles. This would hurt the US," said Mr Xu. "China is 'drawing its bow but not firing. We still have some cards to play."
In retaliation for the US tariffs in steel and aluminium, China is considering levying an additional 15% tariff on US products including dried fruit, wine and steel pipes and an extra 25% duty on pork products and recycled aluminium.
China has assembled a list of 128 US products in total that could be targeted if the two countries are unable to reach an agreement on trade issues, the ministry said.
The commerce ministry said China would implement the measures in two stages: first the 15% tariff on 120 products including steel pipes and wine worth $977 million, and later, the higher 25% tariff on $1.99 billion of pork and aluminium.
US wine exports to China last year were $79 million, according to data from the US Wine Institute, which represents Californian winemakers.
The Chinese list also included close to 80 fruit and nut products. US exports of fruits, frozen juices and nuts to China amounted to $669 million last year, and it was the top supplier of apples, cherries, walnuts and almonds.
But Mr Trump authorised the suspension of controversial tariffs on steel and aluminium imports from key trade partners including the European Union.
"The tariffs on steel and aluminum imports from the following countries are suspended until May 1, 2018," the White House said in a statement, listing EU members states, Argentina, Australia, Brazil, Canada, Mexico and South Korea.
"Each of these countries has an important security relationship with the United States," a proclamation from Mr Trump announcing the steel decision said.
The US is in discussions with the countries "on satisfactory alternative means to address the threatened impairment to the national security by imports of steel articles," and tariffs on steel imports from the trade partners will be exempt for now, it said.
US Trade Representative Robert Lighthizer told a Senate committee earlier in the day that the tariff suspension had been authorised by Trump, just hours before the tariffs were to kick in.
"The idea that the president has is that, based on a certain set of criteria, that some countries should get out," Mr Lighthizer said in testimony before the Senate Finance Committee.
Many countries, including those of the EU, warned the White House that they would retaliate forcefully if they were hit with tariffs on metals products.
EU Trade Commissioner Cecilia Malmstrom made the EU's case over two days this week in Washington, negotiating the carve-out with US Commerce Secretary Wilbur Ross, a strong backer of Mr Trump's "America First" policies.
Arriving at a EU summit, German Chancellor Angela Merkel said "thanks" to Mr Malmstrom "for holding intensive talks with the United States and we will see what the result is."
As a precaution, the commission had drawn up a list of potential counter-measures, including tariffs on peanut butter and Harley Davidson motorcycles, in case Mr Trump followed through.
"We have made it clear that we do not want a trade war. Trade war is of no use to anyone," said Jean-Claude Juncker, chief of the European Commission, which handles trade talks for the 28 member states.
German Economy Minister Peter Altmaier had stressed in Berlin that "fighting until the last minute is worth it," with Germany especially worried about its auto industry.
The close confidant of Mrs Merkel reported a "very positive impression" of Ross, whom he also met earlier this week in Washington for last-minute talks.
"We both know what the problem is," Mr Altmaier said, pointing the finger instead at China.