US-China trade war escalates
THE world’s two biggest economies have fired the opening shots in a trade war that could have wide-ranging consequences globally.
With the United States slapping a 25 per cent tax on $34 billion worth of Chinese imports starting yesterday, China was set to hit back with taxes on an equal amount of US products, including soybeans, lobsters, sport-utility vehicles and whiskey.
The United States accuses China of using predatory tactics in a push to supplant US technological dominance. The tactics include forcing American companies to hand over technology in exchange for access to the Chinese market, as well as outright cyber-theft.
Though the first exchange of tariffs is unlikely to inflict much economic harm on either nation, the damage could soon escalate.
US President Donald Trump, who has boasted that winning a trade war will be easy, said he was prepared to impose tariffs on up to $550 billion in Chinese imports — a figure that exceeds the $506 billion in goods that China actually shipped to the United States last year.
Escalating tariffs would likely raise prices for consumers, inflate costs for companies that rely on imported parts, rattle financial markets, cause lay-offs and slow business investment as executives wait to see whether the Trump Administration can reach a truce with Beijing.
The damage would threaten to undo many of the economic benefits of last year’s tax cuts.
A full-fledged trade war, economists at Bank of America, Merrill Lynch and elsewhere warn, risks tipping the US economy into recession. And those caught in the initial line of fire — US farmers facing tariffs on their exports to China, for instance — are already hunkered down and fearing the worst.
The price of US soybeans has plunged 17 per cent over the past month on fears that Chinese tariffs will cut off American farmers from a market that buys about 60 per cent of their soybean exports.
“For soybean producers like me this is a direct financial hit,” Brent Bible, a soy and corn producer in Romney, Indiana, said in a statement from the advocacy group Farmers for Free Trade. “This is money out of my pocket. These tariffs could mean the difference between a profit and a loss for an entire year’s worth of work out in the field, and that’s only in the near term.”
Even before the first shots were fired, the prospect of a trade war was worrying investors. The Dow Jones industrial average has shed nearly 1000 points since June 11.
The Chinese currency, the yuan, has dropped 3.5 per cent against the US dollar over the past month, giving Chinese companies a price edge over their US competition.