China Is Prepared to Retaliate Against Trump’s Threatened Tariffs

* “The carrot and stick tactic won’t work,” the Chinese Ministry of Commerce said

* Statement came after Trump threatened to more than double proposed tariffs on $200 billion of Chinese goods imported annually

China vowed to strike back after U.S. President Donald Trump threatened to double proposed tariffs on $200 billion of Chinese imports in an escalating trade war between the world’s two largest economies that rattled stock markets.

“China is fully prepared and will have to retaliate to defend the nation’s dignity and the interests of the people,” the Chinese Ministry of Commerce said Thursday in a statement. China will “defend free trade and the multilateral system, and defend the common interests of all countries,” the ministry said.

The statement responded to White House confirmation that Trump on Wednesday instructed top trade official Robert Lighthizer to look at slapping 25% tariffs on the Chinese goods, up from the 10% proposed July 10. The American president is seeking to ratchet up pressure on Beijing in the intensifying trade dispute.

“The carrot and stick tactic won’t work,” the Commerce Ministry said, noting that the Trump administration has sent conflicting messages as it threatens to jack up the tariffs while signaling it wants to resume talks with China.

“China has consistently advocated resolving differences through dialogue, but only on the condition that we treat each other equally and honor our words,” the ministry said.

The proposed new tariffs could not take effect before September, and no decision has been made, White House officials said. The U.S. has already imposed 25% tariffs on $34 billion of Chinese imports and is on schedule to levy similar tariffs on an additional $16 billion of goods. China has struck back with tariffs on similar amount of American imports.

Also Thursday, China’s Ministry of Foreign Affairs pushed back against Trump’s latest tariff threat.

“Blackmailing won’t work, and if the U.S. escalates, China will retaliate,” said Geng Shuang, a spokesman of the Foreign Affairs Ministry at a regular news briefing, repeating China’s stance stated the previous day.

The escalating trade tensions rattled equity markets. The Dow Jones Industrial Average dropped more than 100 points shortly after opening, while the S&P 500 Index lost 0.2%.

China’s benchmark Shanghai Composite Index plunged 2% Thursday while the Shenzhen Component Index tumbled 2.5%. The Hong Kong Hang Seng index slipped 2.21% to touch a 10-month low.

Contact reporter Han Wei (weihan@caixin.com)