President Donald Trump’s looming trade war with China ratcheted up so quickly you might have missed it. Over the weekend, Trump engaged in a back-and-forth with the country that ultimately led him to threaten tariffs on $450 billion of Chinese imports.
“We have to,” Trump told reporters Friday. “We’ve been treated very unfairly.”
For Trump, who has declared trade wars “easy to win,” the escalating tariffs represent the fulfillment of a campaign promise to crack down on China and reduce the U.S. trade deficit to support U.S. jobs. But most economists, business leaders and trade experts on both sides of the aisle have cried foul, arguing that trade wars are a dangerous game that could hurt the economy at home and around the world.
The prospect of a trade war is particularly dangerous when it comes to China, the U.S.’ largest goods trading partner. Products from the country are integrated into global supply chains, and the U.S. sends the country billions of dollars worth agricultural products, vehicles and machinery each year.
That position — along with the authoritarian nature of its political system — gives China significant leverage to stay the course in any trade war. The country’s tariffs on $34 billion in goods announced on June 15 targeted industries in politically sensitive places: soybean farmers in Iowa, U.S. automakers in the Rust Belt and orange juice in Florida.
People in those swing states are taking notice. “If we lose trade to China, our neighbors to the south will be glad to take up that trade,” says John Heisdorffer, a soybean producer from Iowa and president of the American Soybean Association.
That’s not to say that China is blameless. Trump’s June 15 tariffs came in response to a months-long investigation that documented trade practices from forcing U.S. companies to share trade secrets to subsiding domestic industries which have been widely condemned as unfair. “China seeks to acquire the crown jewels of American technology,” says Peter Navarro, a White House trade advisor. “This is the kind of thing that needs to be addressed.”
But most economists generally say that tariffs are the wrong way to tackle the issue. The rollout of this latest set of actions was quick and decisive, leaving little opportunity for negotiation. On June 15, Trump announced tariffs on $50 billion worth of Chinese imports. Within minutes China responded in kind, targeting a range of goods from soy beans to electric vehicles, and prompting Trump three days later to order his trade office to find another $200 billion worth of Chinese goods to target. Preemptively, Trump said he would be willing to bring the total value of Chinese goods targeted with tariffs to $450 billion.
“China has a farily predictable pattern of responding immediately and with pretty stiff tariffs,” says Ron Kirk, U.S. Trade Representative under President Obama and now a partner at the law firm Gibson, Dunn and Crutcher. “Whenever you get in this tit-for-tat escalation and retaliations, it generally is not good.”
Perhaps most importantly, the fast-moving nature of the back and forth means it will be difficult to halt. Negotiations for a brokered truce with China have all but stopped — Navarro says “our phone lines are open” — and trade officials are stretched thin dealing on other fights with Canada, Mexico and a raft of European countries.
“We have a front opened up on the EU, China and NAFTA,” says Carlos Gutierrez, U.S. Secretary of Commerce under George W. Bush and chair of the Albright Stonebridge Group. “That’s pretty much the world’s economy right there.”
You may not have felt the pinch of the trade war yet, but experts say that barring big shift in direction large swathes of Americans will get hit. To understand the effects of tariffs, look no further than washing machines and solar panels. The price of laundry equipment has spiked 17% in the last three months after years of decline, according to Bureau of Labor Statistics data. And more than $2.5 billion in U.S. solar projects have been scrapped thanks to the tariffs, according to a Reuters analysis.
Meanwhile, markets have responded poorly to Trump’s tariffs play, dipping repeatedly with each new tariff announcement. Even an internal report from the White House Council of Economic Advisers reported by the New York Times found that Trump’s trade agenda would hurt the U.S. economy. At the same, Trump’s tax cuts and higher spending have actually exacerbated the trade deficit, which he ostensibly hopes to reduce with his trade agenda. “Look, I have always said a trade deficit doesn’t matter,” former Trump advisor Gary Cohn said at a Washington Post event last week. “In many respects, it’s helpful to our economy.”
But Trump has remained determined to implement his trade agenda in contrast to his vacillations on other political issues. And he is counting on the getting tough on China play to deliver a win for his base and give Republicans a boost in the midterm elections. The question now is whether economic effects will be felt by then as well.
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