June 21, 2018 / 3:52 AM / in 6 months

UPDATE 5-Washington's 'capricious' trade actions will hurt US workers, China warns

* China says U.S. accusations of forced tech transfer are severe distortion of reality

* Beijing says it will take action to defend its interests

* China says no matter how U.S. attitude changes, China to continue on its own path (Adds Chinese president comments; paragraphs 10-16)

By Yawen Chen and Se Young Lee

BEIJING, June 21 (Reuters) - China’s commerce ministry on Thursday accused the United States of being “capricious” over bilateral trade issues, and warned that the interests of U.S. workers and farmers ultimately will be hurt by Washington’s penchant for brandishing “big sticks”.

Previous trade negotiations with the United States were constructive, but Beijing has had to respond in a strong manner due to the U.S. tariff threats, commerce ministry spokesman Gao Feng said.

President Donald Trump threatened on Monday to hit $200 billion of Chinese imports with 10 percent tariffs if Beijing retaliates against his previous announcement to target $50 billion in imports. The United States has accused China of stealing U.S. intellectual property, a charge Beijing denies.

Washington’s accusations of forced tech transfers are a distortion of reality, and China is fully prepared to respond with “quantitative” and “qualitative” tools if the U.S. releases a new list of tariffs, Gao told a regular briefing in Beijing.

China could hit back at U.S. firms listed on the Dow Jones Industrial Average if Trump keeps heightening tension with Beijing over trade, state-controlled Chinese tabloid the Global Times said on Thursday.

The 30-stock Dow, which counts Boeing Co, Apple Inc and Nike Inc among its constituents, fell 0.17 percent on Wednesday and has declined 0.25 percent this year. By contrast, China’s benchmark Shanghai Composite Index has slumped 13.1 percent year-to-date.

“It is deeply regrettable that the U.S. has been capricious, escalated the tensions, and provoked a trade war,” Gao said. “The U.S. is accustomed to holding ‘big sticks’ for negotiations, but this approach does not apply to China.”

White House trade adviser Peter Navarro, who views China as a hostile economic and military power, said on Tuesday Trump’s actions were a necessary defence of the “crown jewels” in the U.S. economy.

None of the U.S. administration’s efforts to negotiate with Beijing had yielded progress on changing China’s “predatory” trade practices, Navarro said.

Fending off criticism from some Western countries, China has said it is willing to boost imports and widen market access.

In April, President Xi Jinping told a high-profile Chinese forum that import tariffs would be cut on goods such as cars, among other promises. In May, Beijing said it would lower import tariffs on 1,449 consumer goods, starting from July 1.

“I’ve been honouring my words with actions,” Xi told a group of foreign chief executives in Beijing on Thursday.

OPEN TRADE CONFLICT

Xi said countries should not fight among themselves, but instead cooperate and meet challenges together, adding that the last global financial crisis happened not too long ago.

“We still have vivid memories of what happened during the financial crisis and we are not yet fully recovered,” he said.

“We must also stay vigilant because, as economic growth still lacks momentum, we have seen a surge of trade protectionism, isolationism and populism.”

Global financial markets have shuddered this week amid worries about open trade conflict between the world’s two biggest economies.

Three rounds of high-level talks since early May failed to reach a compromise on U.S. complaints over Chinese practices and its record deficit with China.

Last year, the deficit was about $375 billion, as China imported $129.89 billion of U.S. goods, while the United States purchased $505.47 billion of Chinese products, according to U.S. data.

A Sino-U.S. trade war could disrupt global supply chains for the tech and auto industries, sectors heavily reliant on outsourced components, and derail world growth.

“U.S. unilateral protection measures will ultimately harm the interests of U.S. companies, workers and farmers,” Gao told reporters.

British forecaster Oxford Economics, in a recent note, said it “will not be easy for the U.S. to identify $200 billion worth of Chinese imports that it can levy tariffs on without hurting U.S. companies and/or consumers, given the strong involvement of U.S. companies in a large share of China’s exports to the U.S.”

Gao said China and the U.S. were due to negotiate on issues around the manufacturing and service industries in the near future.

Chinese shares fell on Thursday on investor worries about the trade dispute, with the Shanghai index languishing at a two-year low and stocks of about 100 firms down by the daily limit of 10 percent.

“I suspect that the U.S. indices will start to sniff out the specific losers from this trade war, and individual stocks will get hurt much more than the broad index as investors understand this isn’t going to kill global growth,” Andrew Polk, co-founder of research firm Trivium China, told the Reuters Global Markets Forum.

“But it will impact some companies disproportionately.”

EVEN MORE TARIFFS

China said it would impose additional tariffs on 659 U.S. goods, with duties on 545 to kick in on July 6, after Trump said Washington would levy tariffs on $50 billion of Chinese products.

Beijing’s planned tariffs would add to duties it had already slapped on 128 U.S. goods, such as pork, fruits and nuts, in reaction to Trump’s earlier move to impose taxes on Chinese steel and aluminium.

The U.S. goods affected on July 6 also include pork and fruit, as well as soybeans, autos and an array of marine products.

A trade war would hit U.S. farmers, a vast majority of whom supported Trump in the 2016 election.

“Jobs for the Chinese are just as precious as those for the Americans,” Zha Daojiong, a professor of international political economy at Peking University, told Reuters in an email.

“It will be wise for the two sides to come back to the negotiation table, abide by a temporary agreement and turn down the rhetoric.”

Beijing has yet to set a tariff activation date for the remaining 114 U.S. products, which include crude oil, coal and a host of refined fuel products.

“We cannot be soft with Trump. He is using his ‘irrationality’ as a tactic and he is trying to confuse us,” said Chen Fengying, an economics expert at state-backed China Institutes of Contemporary International Relations.

“But if we could accomplish some of the things that he wants us to do - such as IP, market reforms, he’d be helping us. Of course there are risks, those would depend on how we handle those reforms.” (Reporting by Se Young Lee and Yawen Chen; Additional reporting by Ben Blanchard in BEIJING and Divya Chowdhury in MUMBAI; Writing by Ryan Woo; Editing by Sam Holmes and Clarence Fernandez)

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