The world’s two biggest economies fired the opening shots yesterday in a trade war that could have wide-ranging consequences for consumers, workers, companies, investors and political leaders.
The United States slapped a 25 percent tax on $34 billion worth of Chinese imports, and China is retaliating with taxes on an equal amount of US products, including soybeans, pork and electric cars.
China’s commerce ministry said Washington had “ignited the biggest trade war in economic history.”
The United States accuses China of using predatory tactics in a push to supplant American technological dominance.
The tactics include forcing US companies to hand over technology in exchange for access to the Chinese market, as well as outright cyber-theft. Trump’s tariffs are meant to pressure Beijing to reform its trade policies.
Though the first exchange of tariffs is unlikely to inflict much economic harm on either nation, the damage could soon escalate. President Donald Trump, who has boasted that winning a trade war will be easy, said Thursday that he’s prepared to impose tariffs on up to $550 billion in Chinese imports - a figure that exceeds the $506 billion in goods that China actually shipped to the United States last year.
Escalating tariffs would likely raise prices for consumers, inflate costs for companies that rely on imported parts, rattle financial markets, cause some layoffs and slow business investment as executives wait to see whether the Trump administration can reach a truce with Beijing. The damage would threaten to undo many of the economic benefits of last year’s tax cuts.
A full-fledged trade war, economists at Bank of America Merrill Lynch and elsewhere warn, risks tipping the US economy into recession.
And those caught in the initial line of fire - U.S. farmers facing tariffs on their exports to China, for instance - are already hunkered down and fearing the worst. The price of U.S. soybeans has plunged 17 percent over the past month on fears that Chinese tariffs will cut off American farmers from a market that buys about 60 percent of their soybean exports.
“For soybean producers like me this is a direct financial hit,” Brent Bible, a soy and corn producer in Romney, Indiana, said in a statement from the advocacy group Farmers for Free Trade. “This is money out of my pocket. These tariffs could mean the difference between a profit and a loss for an entire year’s worth of work out in the field, and that’s only in the near term.”
Even before the first shots were fired, the prospect of a trade war was worrying investors. The Dow Jones industrial average has shed nearly 1,000 points since June 11.
The Trump administration has also applied tariffs on steel and aluminium from allies like Canada and Mexico and has threatened to abandon the North American Free Trade Agreement with those two countries. Trump has also spoken about slapping tariffs on imported cars, trucks and auto parts, which General Motors has warned could hurt the US auto industry and drive up car prices.
The Chinese currency, the yuan, has dropped 3.5 percent against the US dollar over the past month, giving Chinese companies a price edge over their US competition. The drop might reflect a deliberate devaluation by the Chinese government to signal Beijing’s “displeasure over the state of trade negotiations,” according to a report Thursday from the Institute of International Finance, a banking trade group.
The Trump administration sought to limit the impact of the tariffs on US households by targeting Chinese industrial goods, not consumer products, for the first round of tariffs.