Trump punishes China on trade; Minn. firms worry about fallout

Washington – President Donald Trump on Thursday announced that he will place punitive tariffs on Chinese products sold to U.S. companies to make up for what the White House says is $50 billion worth of unfair trade practices.

The administration will also restrict Chinese investments in U.S. companies.

The U.S. trade representative will propose a specific list of products to be taxed. Senior White House officials said the list of targets was "long" but weighted toward high-tech products that the U.S. says were "acquired in an unfair way."

The moves against the Chinese brought a quick threat of retaliation, with Beijing announcing that it could raise tariffs on U.S.-produced pork, aluminum and other goods. U.S. financial markets sold off sharply in reaction to the prospect of a trade war, with the Dow Jones losing more than 700 points.

With the exchange of tariff actions, the relationship between the world's top-ranked economy, the United States, and the world's second-ranked economy, China, formally moves from cooperative to adversarial.

Trump's move came despite warnings from trade groups representing major U.S. businesses, including Minnesota-based Target and Best Buy, that tariffs will lead to cost increases for U.S. importers of Chinese goods. Those increases, the trade groups said, will mean consumers pay higher prices.

Like many Minnesota businesses Thursday, Target took a wait-and-see approach to the ultimate impact of the tariffs. The company relies heavily on China for its merchandise.

"We are waiting for more details as we assess the potential impact to our business and our guests," a spokeswoman said in a statement. "However, knowing that a broad tariff on imports will likely result in higher prices, we are very concerned that hardworking American families will face higher costs."

A senior White House official, speaking on background, promised "minimal effects on consumers."

Critics worry that combined with Trump's recent imposition of a 25 percent tariff on imported steel and a 10 percent levy on imported aluminum, the Chinese tariffs and investment restrictions could move America closer to an international trade war.

China is Minnesota's leading source of imports. Last year, state businesses bought more than $11 billion in non­agricultural goods and services — ranging from T-shirts to consumer electronics — from China, government records show. That was nearly 40 percent of all imports to the state, up from 30 percent in 2014.

While it is difficult to break down Chinese imports by individual businesses, Target has acknowledged in government filings that it buys much of its merchandise from China.

"A large portion of our merchandise is sourced, directly or indirectly, from outside the United States, with China as our single largest source, so any major changes in tax policy or trade relations, such as the imposition of additional tariffs or duties on imported products, could adversely affect our business," the company said in its most recent annual report. Target shares lost nearly 2 percent Thursday.

Many of Minnesota's big-name manufacturers also have big bets on China. 3M expects about $3.5 billion in sales in China this year, more than 10 percent of its total. The Maplewood-based company, which employs 8,200 people in 11 factories, 27 offices, four technology centers and two research centers in China, saw its shares decline nearly 5 percent Thursday. Ecolab has at least six factories in China. Graco, Pentair, Toro, Tennant, and H.B. Fuller also operate there.

China clearly maintains a "pay-to-play system" and poses "a big challenge" in its efforts to expropriate U.S. intellectual property, said Shaye Mandle, CEO of the Medical Alley Association, a trade group of Minnesota medical technology companies. But the prospect of retaliation rather than renegotiation is a concern for the group.

"Any retaliation against tariffs by China or anyone else affects every business by creating uncertainty," Mandle said. "China is particularly concerning because it is the No. 1 source of imports."

As the stock market recoiled Thursday, Scott Paul, president of the Alliance for American Manufacturing, said sanctions against China were the only way to get that country's attention.

"There's no disagreement that China cheats," Paul said in a statement. "The only question is, do we continue to ignore China's cheating or do we finally act decisively to stop it?''

Chinese imports play a major role in keeping prices down for products sold by many Minnesota companies, said University of Minnesota international trade specialist Robert Kudrle.

"Chinese products loom much larger in the budgets of poorer people than wealthier people," Kudrle noted.

American companies' and consumers' reliance on the affordability of Chinese imports gets to the dilemma of placing punitive tariffs on a giant trading partner. Tariffs could hurt those companies and their customers. But the Trump administration believes China is aiming for world domination of technology and intellectual property markets with harmful practices such as forcing U.S. companies into joint partnerships with Chinese companies in order to do business in China. Those partnerships not only cut profits but give the Chinese access to U.S. technology, according to the administration.

"If China dominates," the senior White House official said, "the U.S. doesn't have a future."

U.S. Trade Representative Robert Lighthizer must deliver a list of Chinese products to be taxed within 15 days. A public comment period will follow before the tariffs are implemented.

The Treasury Department will have 60 days to work out new investment restrictions on Chinese companies buying into U.S. businesses.

Staff writer Dee DePass contributed to this report. Jim Spencer • 202-662-7432