Updated at 4:19 p.m. ET
China is imposing new retaliatory tariffs on $60 billion worth of U.S. goods, days after the Trump administration said it would impose higher tariffs on $200 billion in Chinese goods. The latest tit-for-tat exchange comes as trade talks have failed to yield a deal.
U.S. stock prices plunged on the news. The Dow Jones Industrial Average closed down 617 points Monday, or 2.4%, and the Nasdaq composite fell 3.4%.
China's latest tariffs will take effect on June 1, adding up to 25% to the cost of U.S. goods that are covered by the new policy from China's State Council Customs Tariff Commission.
The retaliation had been expected. Discussing the likelihood of China hitting back at U.S. imports over the weekend, Larry Kudlow, Trump's top economic adviser, said: "I reckon they will. We'll see what they come up with."
President Trump had struck a genial tone in tweets on Friday, calling the talks "candid and constructive." But he struck a very different note Saturday, when he came out swinging at a number of targets.
"I think that China felt they were being beaten so badly in the recent negotiation that they may as well wait around for the next election, 2020, to see if they could get lucky & have a Democrat win — in which case they would continue to rip-off the USA for $500 Billion a year," he tweeted. "The only problem is that they know I am going to win (best economy & employment numbers in U.S. history, & much more), and the deal will become far worse for them if it has to be negotiated in my second term. Would be wise for them to act now, but love collecting BIG TARIFFS!"
Kudlow was considerably more measured on Fox News Sunday. He emphasized the talks' ongoing nature and discouraged the term "trade war," saying the tariffs were simply part of the negotiations.
Trump and Chinese President Xi Jinping will likely talk at the G-20 summit late next month in Japan, Kudlow said, and China's ambassador has invited U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin to Beijing.
Tariffs on Chinese goods increased from 10% to 25% on Friday, making the underlying cost of those items higher for U.S. customers. The Trump administration has imposed tariffs on Chinese goods before, and in each case, China was quick to impose tariffs on U.S. products.
Wei Jianguo, a former vice-minister at the Ministry of Commerce who handled foreign trade, told the South China Morning Post that China was prepared for a long trade war.
"China will not only act as a kung fu master in response to U.S. tricks, but also as an experienced boxer and can deliver a deadly punch at the end," Wei said.
With trade talks between the world's two largest economies in limbo, Chinese stock markets dipped on Monday, and the yuan hit a four-month low. But markets there are still higher than analysts had predicted.
Trump has repeatedly framed the tariffs as primarily hurting China. For instance, last week at the White House, he said: "Our country can take in $120 billion a year in tariffs. Paid for mostly by China, by the way. Not by us. A lot of people try and steer it in a different direction. Ultimately it's paid for largely by China."
But actually it's American businesses that will pay the tariffs, and in many cases, pass the expense on to their American customers. In some cases, China might absorb some of the cost to stay competitive, but for the most part, it's folks in the U.S. who will pay the price.
Kudlow, Trump's economic adviser, said as much on Sunday. "I don't disagree with that," he said to Fox News' Chris Wallace. But he added that "both sides will suffer on this."
He downplayed concerns that the tariffs would lead to U.S. job losses and hurt the GDP. "The United States' economy is in a boom," he said. "You've got to do what you've got to do. We have had unfair trading practices all these years and so in my judgment, the economic consequences are so small, but the possible improvement in trade and exports and open markets for the United States — this is worthwhile doing."
Previous rounds of tariffs are already making life more expensive in the U.S., as NPR's Yuki Noguchi reports:
"They've increased consumer costs by $1.4 billion a month, according to experts from the Federal Reserve Bank of New York and Princeton and Columbia University. To date, tariffs have largely affected raw materials like chemicals and wooden beams used to make other products, so the cost increases appear incremental to the consumer. But additional new tariffs would boost prices on a broader number of finished goods — things consumers actually buy, like bicycles.
This latest round of tariffs will add another $500 a year in costs for the average American household, says Katheryn Russ, an economics professor at the University of California at Davis. And that could grow. President Trump has pledged to broaden tariffs even further to all Chinese imports — including big-ticket items. 'Once the tariffs go onto cellphones, I mean then you're going to see people scream,' " she says.
NPR Shanghai correspondent Rob Schmitz contributed to this report.