The US-China trade war escalated Monday as Beijing announced it would raise painful tariffs on $60 billion in US exports by next month, responding in kind to President Donald Trump's decision last week to hike duties on hundreds of billions of dollars in Chinese merchandise.

While American officials argue that they have the upper hand in the year-long clash, China struck back amid reports it could raise the temperature even higher by boycotting US agriculture, dumping American debt and cutting orders for Boeing aircraft.

However, US President Donald Trump left open the door for reconciliation, saying he expected a "fruitful" meeting next month with his Chinese counterpart Xi Jinping at a Group of 20 summit in Japan.

Trump has meanwhile also ordered the start of a process to impose new duties on about $325 billion worth of additional Chinese merchandise.

But he said Monday in Washington he had not decided whether he would ultimately impose those levies.

The increase in duty rates that Beijing announced Monday targets a range of American agricultural and manufactured goods, kicking levies up as high as 25 percent, according to a statement by the Tariff Policy Commission of the State Council -- China's cabinet.

Despite the retaliation, Beijing also appeared to give time to find a resolution by setting the June 1 date for those increases to take effect.

"China's adjustment of tariff-adding measures is a response to US unilateralism and trade protectionism," the statement said, adding that it hoped the US would work with China towards a "win-win agreement."

The announcement sent Wall Street stocks plunging, with the tech-rich Nasdaq having its worst day of 2019 and the benchmark Dow Jones Industrial Average closing at its lowest level since February 11.

But in a news conference, Trump was buoyant, telling reporters that his decision to increase tariffs was "a very positive step."

"I love the position we're in," he said during a joint news conference at the White House with Hungarian Prime Minister Viktor Orban.

"There can be some retaliation but it can't be very substantial by comparison."

Trump called on manufacturers fearful of the US tariff increases to build their wares in the United States -- or at least outside of China.

He said he was considering adding 25 percent duties on the remaining $325 billion in Chinese exports not currently subject to US tariffs.

"That is a tremendous amount of money that would come into our country," Trump said. "I have not made that decision yet."

- 'Never surrender' -

Economists say the US-China trade war will weigh on the global economy, which is already forecast to slow this year.

Trump launched the trade war last year to extract profound economic reforms from Beijing, accusing China of seeking to forge global industrial dominance through massive state intervention in markets and the theft of American technology -- all in violations of its commitments upon joining the World Trade Organization in 2001.

Beijing rejects the charges and the United States and China have so far exchanged tariffs on more than $360 billion in two-way trade.

"China will never surrender to external pressure," foreign ministry spokesman Geng Shuang said at a regular briefing on Monday.

"The two presidents maintain contact through various means," he added, without confirming a possible meeting between the two leaders.

In addition to tariff hikes, China could also use other measures to hit back at the United States, as it imports fewer US products -- which limits its ability to match tariffs dollar-for-dollar.

"China may stop purchasing US agricultural products and energy, reduce Boeing orders and restrict US service trade with China," Hu Xijin, editor of China's party-owned Global Times, tweeted.

"Many Chinese scholars are discussing the possibility of dumping US Treasuries and how to do it specifically."

Beijing is the biggest holder of US debt, and Bloomberg estimated last year that China held around $1.2 trillion.

But US Treasury Secretary Steven Mnuchin told reporters on Monday he believed China would continue to buy US debt.

"I assume so. It's a good investment," he said, adding that no date had yet been set for a further round of negotiations to be held in Beijing.

Beijing's top trade negotiator, Liu He, likewise said Friday the next round would start in the Chinese capital at an unspecified date.

Meanwhile, aircraft manufacturer Boeing later said it remained "confident" US-China trade talks would yield an agreement.

The company depends on the Chinese market for a large share of its revenues.

China's arsenal in the trade war against the United States
Beijing (AFP) May 14, 2019 - Beijing's latest retaliation against US tariff hikes -- an increase on $60 billion of US imports from June 1 -- could leave China running low on ammunition in the trade war.

China imports almost four times less than it exports to the United States, and Beijing already levies punitive charges on almost all US goods arriving in China -- $110 billion out of an annual total of $120 billion.

So if Beijing does up its tariffs to as high as 25 percent on a range of US products, including liquefied natural gas, chemicals, fruit, vegetables and seafood, it may limit its room for manoeuvre.

Here AFP looks at some of China's options:

- Tariff tussling? -

"Tariffs are a self-inflicted wound. You are raising the import costs of your own producers," said Robert Lawrence, professor of trade and investment at Harvard University.

However, in the middle of a trade war "economic considerations are secondary", he said, because "it is much more about posturing, bargaining and politics".

"Can China be seen to be passively accepting these measures from the United States?"

Cars and auto parts from the US face the prospect of a 25 percent hike in duties.

Announced by Beijing in December, the measure was suspended at the beginning of the year but can be easily reactivated.

The sector, crucial for the US economy, also represents an important electoral base for Donald Trump.

- Devalue the yuan? -

Trump regularly accuses the Chinese central bank of lowering its currency rate to support exporting firms, but is it an option?

Rajiv Biswas, Asia Pacific chief economist for IHS Markit, says no.

"It is not a realistic strategy for China to try to mitigate a 25 percent tariff by allowing further declines in the yuan," he told AFP.

"A key priority for the Chinese government since 2015 has been to stabilise the exchange rate and prevent large capital outflows, in order to protect its foreign exchange reserves.

"Therefore the Chinese government is unlikely to want any potentially destabilising decline in the yuan, which could trigger renewed large capital outflows."

- Penalise businesses? -

China could make life difficult for US companies in the country in the form of regulatory requirements or customs blockages.

These measures "will get a lot of support in China, but will further undermine business confidence" abroad, said Jake Parker from the US-China Business Council.

If Beijing went for that option, that would constitute an "escalation", according to Jacob Funk Kirkegaard, senior fellow at the Peterson Institute for International Economics (PIIE).

"If you do that, then you run the risk that the Trump administration decides to do a 'ZTE'," referring to when Washington last year banned all sales of electronic components to the Chinese telecoms giant, jeopardising its very existence.

The White House accused the firm of violating embargoes against Iran and North Korea. Donald Trump finally agreed to reconsider the decision.

- Call for a boycott? -

The Chinese could be encouraged not to buy American flagship products, such as the iPhone.

Amid frosty relations with Japan in 2012 or South Korea in 2017, boycott campaigns led to a 50 percent collapse in sales for both countries' car brands in one month.

However, such a measure would also penalise the millions of Chinese employed by American companies and their local partners.

- Snub Boeing? -

China is key to Boeing, to whom it sells a quarter of its planes.

The editor of the nationalist newspaper Global Times -- controlled by the Chinese government -- pondered the possibility that the country would reduce its Boeing orders, although the US aircraft manufacturer said it was "confident".

At the end of March, Beijing nevertheless finalised a firm order for 300 aircraft from European giant Airbus when Chinese President Xi Jinping visited France.

- Sell the debt? -

China is the largest holder of US debt (about $1.2 trillion), but selling a big part of it would be risky because any destabilisation of the markets could undermine the value of Treasury bonds held by Beijing.

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