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Trade war: With neither side backing down, Trump eyes higher China tariffs

Trump is eyeing another $16 billion of Chinese goods and suggesting the final total could top $500 billion, more than the US bought in 2017


Donald Trump
US President Donald Trump

President Donald Trump threatened to impose tariffs on every single Chinese import into America as the world’s two largest economies exchanged the first blows in a trade war that isn’t set to end anytime soon.

After months of rhetoric, a 25 per cent levy on $34 billion of Chinese goods entering the US took effect just after midnight Washington time on Friday with farming plows and airplane parts among the products targeted. China hit back immediately via duties on US shipments including soybeans and automobiles.

Neither side shows any signs of backing down. Trump is already eyeing another $16 billion of Chinese goods and suggesting the final total could top $500 billion, more than the US bought in 2017. China’s Commerce Ministry accused the US of “bullying” and igniting “the largest trade war in economic history.”

The first ever US tariffs aimed just at China will likely rally Trump’s voters who agree with his “America First” argument that Beijing hasn’t played fair for years, stealing America’s intellectual property and undercutting its manufacturers.

But the risk is that a spiraling conflict undermines economic growth by gumming up international supply chains and inflicting higher prices on companies and consumers. The Federal Reserve has already noted some firms are slowing investment, while Harley-Davidson Inc. and General Motors Co. are warning they may cut jobs.

Given the moves were widely telegraphed, investors took them in stride. US stocks were little changed and the dollar extended losses in early trading in New York. Treasuries rose and gold fell as investors assessed the impact of the escalation in the trade rift.

Hours after the tariffs, the US released jobs figures that showed few signs of any early pressures on employment from the trade tension. US hiring topped forecasts in June, while the unemployment rate rose from an 18-year low and wage gains unexpectedly slowed.

The June jobs data show no evidence of trade fears hurting the US economy, Council of Economic Advisers Chairman Kevin Hassett said in an interview on Bloomberg TV on Friday.

“There isn’t clear evidence in the data that the anxiety over trade is being harmful to the industries that we would most watch for harm in,” Hassett said.

“Clearly the first salvos have been exchanged and in that sense, the trade war has started,” said Louis Kuijs, chief Asia economist at Oxford Economics. “There is no obvious end to this.”

The extent of the economic damage will depend on how far both sides go. If the US and China cool off after a first round of tariffs, the fallout will be modest, according to Bloomberg Economics.

Under a full-blown trade war in which the US slaps 10 per cent tariffs on all other countries and they respond, the economists reckon US growth would slow by 0.8 percentage point by 2020. Trump has already imposed duties on foreign steel and aluminium imports, drawing a response from the European Union and Canada which fret he may go after automakers next.

“Our view is that trade war is never a solution,” Chinese Premier Li Keqiang told reporters during a trip to Bulgaria. “No one will emerge as a winner from trade war, it benefits no one.”

First Published: Fri, July 06 2018. 21:41 IST