The world’s largest economies are locking horns. Here’s why.
It’s official: The US and China have fired the opening salvos of what could become a full-blown trade war between the world’s two largest economies.
At 12:01 am Friday, the Trump administration imposed sweeping tariffs on $34 billion worth of Chinese goods, including flat-screen televisions, aircraft parts, and medical devices. The goods marked for tariffs will now face a punishing 25 percent border tax when they’re imported into the US.
The point is to punish China by making Chinese products more expensive for American consumers and businesses to buy. If Chinese products suddenly become more expensive, they’ll buy those same products from somewhere else, and Chinese businesses will lose money.
China immediately accused the US of starting “the largest trade war in economic history to date” and responded by imposing 25 percent tariffs on $34 billion worth of US goods, including soybeans, automobiles, and lobsters.
The Trump administration initiated these tariffs after concluding an investigation into some of China’s most controversial trade practices. The US’s new trade barriers are designed to penalize China for doing things like forcing foreign businesses to hand over their most prized technology to Chinese companies — many of which are state-owned — in exchange for access to their market.
This is only the beginning: More tariffs are coming. The US is expected to impose border taxes on an additional $16 billion worth of Chinese goods in two weeks. And Trump said on Thursday that, depending on how China responds to his tariffs, he’s considering hitting another $500 billion worth of Chinese goods.
Both the US’s and China’s initial round of tariffs against each other are designed to sting deeply. The US is targeting high-tech Chinese goods to put economic pressure on Beijing’s “Made in China 2025” program — a Chinese government initiative to transform China into an advanced manufacturing powerhouse.
And China has deliberately targeted big US agricultural exports like soybeans that come from states in the heart of Trump country, where neither the president nor his party want to see economic instability or job losses right before the 2018 midterm elections.
So does this mean we’re officially in a trade war with China? It depends.
Countries get into tiffs over trade all the time. To sort them out, they can go to the World Trade Organization and have them decide who’s right and who’s wrong; they can negotiate directly with each other to strike a deal; or they can just impose unilateral tariffs on each other’s goods.
That last scenario is the one that has the potential to turn into a trade war. If two countries take one-off strikes at each other’s economies then it’s not a huge deal. But if the tit-for-tat continues, with each country putting more and more tariffs on one another, then you’ve got a trade war.
Given Trump’s threats to keep the tariffs going, that seems to be what’s happening here.