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China raised tariffs today on tens of billions of dollars of goods imported from the U.S., implementing the promised retaliation to President Donald Trump's latest round of trade war duties on about $200 billion in Chinese exports.

The expected tariffs come as challenges pile up for the world's second-largest economy, with output slowing and signs of financial stress appearing. Both countries have signaled that they are digging in for a long-term rivalry, with one Chinese government-affiliated researcher seeing tensions lasting until 2035 and the government announcing that it will fight till the end if the U.S. keeps escalating.

Beijing's lists include:

• 25% tariffs on 2,493 items, up from 10% previously. These include some mechanical parts, natural gas and skincare products.

• 20% tariffs on 1,078 items, up from 10% previously. These include some machinery, wood and optical instruments.

• 10% tariffs on 974 items, up from 5% previously. These include sheet glass, lasers and control valves.

• 5% tariffs continue on 595 items. Auto parts, which were initially on the list but have been exempted since January, are still excluded.

"The most evident impact of the retaliatory tariffs will be on sentiment," said Liu Peiqian, Asia strategist at Natwest Markets PLC in Singapore, adding that markets have shown higher stress levels in May. "The economic impact of the tariffs will be minimal. What we are actually watching is whether the policymakers will tweak the easing policy."

The bilateral tariffs have dented U.S.-China trade, with goods hit with the taxes suffering a blow even as exporters front-loaded shipments. While punitive duties now cover more than two-thirds of China's imports from the U.S., the actual impact may be mitigated as the government will allow companies to apply for exemptions. Goods will be exempted for a year after approval, according to the Ministry of Finance.

Airplanes, some petroleum-based oils, turboprop engine parts and some integrated circuits are among goods still not covered by any punitive duties.

The trade war is spinning out of the tariff domain, with the U.S. blocking Huawei Technologies Co. from purchasing U.S. products or doing business here, and looking to do the same to other Chinese high-tech companies. Beijing has readied a plan to restrict exports of rare earths to the U.S. if needed, Bloomberg reported Friday.

China also will establish a list of so-called unreliable entities in order to target firms it says damaged the interests of domestic companies, according to a statement Friday from the Ministry of Commerce. The move potentially targets a vast swathe of the global tech industry.

The ministry said the list would contain foreign companies, individuals and organizations that "do not follow market rules, violate the spirit of contracts, blockade and stop supplying Chinese companies for noncommercial reasons, and seriously damage the legitimate rights and interests of Chinese companies."

It did not give any details of which companies or entities it would include on the list, or what would happen to them. The ministry said specific measures would be announced in the "near future."

Still, the language echoes that of the U.S. government, which in recent months has placed Chinese companies on what it calls an "entity list" of firms that need special permission to buy U.S. components and technology. Two weeks ago, the Trump administration placed Huawei Technologies Co., the Chinese maker of telecommunications gear, on the entity list, which could deny it access to microchips, software and other U.S.-provided technology it needs to make and sell its products.

Shortly afterward, some U.S. technology companies, including Google, said they would stop supplying Huawei. The U.S. government has since granted Huawei a 90-day waiver, giving Chinese and U.S. officials time to reach an agreement. The Trump administration is also said to be considering putting Hikvision, a Chinese video surveillance company, on the list.

The Financial Times reported Friday that Huawei had ordered employees to cancel technical meetings with Americans and sent home U.S. employees working at its Chinese headquarters.

Huawei is the world's No. 1 network equipment provider and second-largest smartphone maker. U.S. officials claim Huawei is legally beholden to China's ruling Communists, which could use the company's products for cyberespionage, though the U.S. has presented no evidence of intentional spying.

If Beijing's list of "unreliable" entities is calculated to be a strike back at U.S. technology companies, it will have ample targets. Although major websites like Facebook, Twitter and Google are already blocked in China, and rules strictly control other businesses like online payments and cloud services, most American technology firms have a big presence in China.

Both Google and Microsoft run sizable research and development operations in the country, and their Android and Windows operating systems are ubiquitous on Chinese smartphones and computers. Google and Facebook pull in untold figures in advertising revenue from Chinese companies.

The vague announcement also opens the door to retaliation of other kinds, perhaps against individuals or companies that depend heavily on the Chinese market for selling their products. If China decided to target individuals specifically, it could raise questions for foreigners doing business in China.

It also could give Beijing a way to punish American firms without forcing them to shut down operations in a way that would hurt China's economy or its long-term growth prospects.

Gao Feng, the Commerce Ministry's spokesman, said in the statement that the list would be aimed at those who block supplies and "take other discriminatory measures."

An entity would be added to the list, he added, when its activity "not only damages the legitimate rights and interests of Chinese enterprises, and endangers China's national security and interests, but also threatens the global industrial chain and supply chain security."

But China must be careful in how it retaliates since many U.S. companies are already reconsidering their dependence on the Chinese market and Chinese suppliers. If neither side backs off, the brinkmanship could permanently pull apart the supply chains that entwine the countries' economies.

Information for this article was contributed by Natalie Lung and Xiaoqing Pi of Bloomberg News; by Alexandra Stevenson and Paul Mozur of The New York Times; and by Frank Bajak of The Associated Press.

A Section on 06/01/2019

Print Headline: China's retaliatory tariffs on U.S. imports kick in

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