The U.S. government’s announcement of import tariffs on steel and aluminum in March with no exemption to world’s steel giant China and China’s subsequent retaliation with approximately USD 3 billion in tariffs on 128 U.S. exports to China has already ignited sparks of a trade war between the two major economies.
However, when the world thought that both the countries will now calm down to prevent further tensions, on 3 April, Trump government once again proposed a list of 1,300 Chinese products that could be targeted for tariffs.
The U.S. administration announced its plans to apply 25% tariffs on Chinese goods worth USD 50 billion including software, patents, and technology. These tariffs would target Chinese aerospace, tech and machinery industries, medical equipment, and medicine. And although this is just a proposal from the U.S. government and decision on the same would come after 15 May’18, it has irked China and the country this time retaliated quite harshly by announcing 25% tariffs on additional 106 U.S. products exported to China.
The effective start date for the new charges was not announced but the tariffs are designed to target up to USD 50 billion of U.S. products annually. This time China imposed tariffs on key agricultural products such as soybean, corn, wheat, sorghum to name a few. The list also includes passenger vehicles, medical equipment, chemicals, meat, juices, and small aircraft.
The immediate and likely impact of the trade war
The first and foremost reaction to this trade war was seen on the U.S. stocks that plunged dramatically by 450 points while Chinese yuan also suffered 0.4% fall against US dollar. The Trump government’s agenda of ‘America First’ is likely to have dire consequences in the long run. Although, U.S. is one of the dominant countries in world trade, as a rule of economics it is a standard principle that a country cannot survive alone and has to exist within a system.
Taking an example from the history during Great Depression in 1930, U.S. lawmakers raised import tariffs on hundreds of imported products to which many U.S. trading partners reacted by raising their own tariffs which resulted in the shutdown of trade worldwide. However, the world leaders at that time were quick to realize the disadvantages of a closed economy and in 1934 adopted new approach by using international negotiations to overcome protectionist political pressures.
According to the reports, U.S. farmers and manufacturers are opposing the Trump’s reliance on tariffs as a toll to change Chinese industrial policies. The Chinese tariffs are likely to hurt harvesters, processors, truck drivers, rail workers, and main street businesses that rely on a strong agricultural economy along with farmers. Business groups such as the National Association of Manufacturers have urged the administration to pursue negotiations rather than swap tariff hikes with the Chinese.
Although U.S. economists think that Chinese measures are not expected to have a significant impact on the broader U.S. economy as USD 50 billion adds less than 0.1% of the total cost structure of U.S. economy the main concern is how long this game of retaliation will continue.
U.S. hints about negotiation with China
According to market reports that surfaced today, both U.S. and China have shown their willingness to negotiate in order ease the rising tensions among the investors in tit for tat trade dispute. In an interview, the U.S. administration officials emphasized that the U.S. tariffs on 1,300 Chinese products is just a proposal and there are at least two months before any action is taken.
U.S. Commerce Secretary said that “Even shooting wars end with negotiations.”
On the other hand, the Chinese ambassador in U.S., Cui Tiankai quoted that “Negotiations would still be a preference but it takes two to tango. We’ll always stand for consultation and negotiation, but if others do things in the wrong direction, we’ll have to respond.”