Days after raising tariffs to 25% on $200 billion in Chinese imports, President Donald Trump warned the world’s second-largest economy not to retaliate, tweeting that it “will only get worse!” Perhaps falling victim to a 4D chess move, Beijing dismissed the president’s warning and announced new import levies to go into effect next month. Is this a measure that will further escalate the U.S.-China trade dispute, or will it be the final shot before a new trade agreement is ratified?
The Chinese Empire Strikes Back
When China said in September that it would counter any higher tariffs by Washington, it was serious. President Xi Jinping is sending the message that you won’t have China to kick around anymore, which is fascinating because President Trump is conveying the same idea: You won’t have the United States to kick around anymore.
On June 1, China will raise tariffs on 5,140 U.S. products, valued at about $60 billion. These American imports will be subjected to 5%, 10%, 20%, and 25% rates. Last year, China slapped more than 5,200 U.S. goods with 5% and 10% duties in response to its counterpart’s initial 10% levy.
The Ministry of Finance said in a statement:
“China’s adjustment on additional tariffs is a response to U.S. unilateralism and protectionism. China hopes the U.S. will get back to the right track of bilateral trade and economic consultations and meet with China halfway.
“The escalation of trade friction is not in the interests of the people of the two countries and the people of the world. China feels deeply sorry for that. If the U.S. tariff measures are implemented, China will have to take necessary countermeasures.”
The 25% tariff will target 2,493 products, including cosmetics, frozen vegetables, liquefied natural gas (LNG), peanut oil, petrochemicals, and soy oil. The other 20% levy will focus on nearly 1,100 goods, such as chicken, peanuts, sugar, turkey, and wheat.
Neither the White House nor the Treasury Department issued comments in response to the move.
Art of the Trade Deal
Just hours before China responded with higher tariffs, President Trump went to Twitter to vent his frustration and offer insight about what has been going on.
In a series of tweets, he urged Beijing not to retaliate because the country “will be hurt very badly if you don’t make a deal.” The president revealed that China and the United States had a superb pact on the cusp of being completed, but “you backed out!”
Trump further explained that these levies can be avoided if you conduct transactions in non-tariffed nations or in the United States, which he thinks is the better of the two options. In the end, the president asserted, many companies will leave China for Vietnam and other Asian neighbors and “that’s why China wants to make a deal so badly!”
He concluded his tweet storm:
“There will be nobody left in China to do business with. Very bad for China, very good for USA! But China has taken so advantage of the U.S. for so many years, that they are way ahead (Our Presidents did not do the job). Therefore, China should not retaliate-will only get worse!”
China was unconvinced, vowing that it “will never surrender to external pressure.”
Now that another round in the ongoing trade strife has commenced, the key question is: What’s next? The logical outcome of this interruption in international commerce is higher prices. Goldman Sachs forecasts that the core inflation rate could top 2% by the end of 2019 or beginning of 2020:
“The costs of the tariffs have fallen entirely on U.S. businesses and households. Further escalation of the trade war could result in a hit to GDP as large as 0.4%, and if trade tensions sparked a major sell-off in the equity market the growth impact could worsen considerably.”
Consumers have already suffered from the sticker shock in recent months, spending an additional $1.4 billion a month in higher costs. For everything from washing machines to floor lamps to furniture, the average U.S. household can anticipate being dinged an extra $500 per year. It might not seem like much now, but Katheryn Russ, an economics professor at the University of California at Davis, warns that once shoppers notice tariffs on cellphones, “then you’re going to see people scream.”
With the back-to-school shopping season around the corner, parents and children will feel the pinch.
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