Global fears as trade tensions escalate
The United States and China edged closer to triggering the riskiest trade war in decades, a fight that could weaken the world’s two largest economies, unsettle relations between Beijing and Washington and crimp global growth.
The collateral damage could be widespread.
If the tariffs the two countries have threatened to slap on each other’s exports take effect, their consumers would have to pay higher retail prices. Companies would pay more for imports and would have to decide whether to absorb those higher costs or pass them on to their customers.
American farmers could be evicted from a lucrative market for their goods. US companies would likely face obstruction from regulators in China, a market they rely on for an outsize share of sales.
The standoff threatens to tip “the US and China into a downward spiral like the world hasn’t seen since the trade war that plunged us deeper in in the Great Depression and into the Second World War,” warned Matt Gold, professor of international trade law at the Fordham Law School and a former US trade official.
World financial markets buckled after President Donald Trump ratcheted up the tensions by proposing a fresh batch of tariffs on Chinese products. With concerns growing on Wall Street, the Dow Jones industrial average closed down nearly 300 points — more than 1 per cent — on its sixth straight losing day. Stocks tumbled nearly 3 per cent in Hong Kong, 2 per cent in Tokyo and 4 per cent in Shanghai.
Trump previously ordered 25 per cent tariffs on US$50 billion ($72b) in Chinese goods in retaliation for Beijing’s forced transfer of US technology and for intellectual property theft. Those tariffs, set to start taking effect on July 6, were matched by China’s threat to penalise US exports.
Beijing’s response drew the president’s ire. Earlier this week, Trump told his US trade representative, Robert Lighthizer, to target an additional US$200b in Chinese goods for 10 per cent tariffs. These penalties would take effect, the White House said, “if China refuses to change its practices” and proceeds with its plans for retaliatory tariffs.
The tit-fortat penalties could escalate. Trump threatened tariffs on US$200b more in Chinese products if Beijing lashes back again. Combined, the potential tariffs on Beijing could cover US$450b — a sum equal to 89 per cent of Chinese goods imported to the United States last year.
The tariffs would start to slow US growth, economists warn. Oxford Economics estimates that if Trump imposed the US$200b in tariffs and China responded in kind, US growth could slow by 0.3 percentage point next year.
Trump is gambling that Beijing has the most to lose. China couldn’t come close to matching America’s tariffs on US$450b of Chinese exports. The United States sold only US$130b of goods to China last year.
But Beijing has chosen its targets strategically.
Soybeans are on the list — a direct shot at a swathe of Trump supporters in the American heartland. About 60 per cent of US soybean exports go to China. US companies have an increasingly sizable stake in the fastgrowing Chinese market. They’ve invested a cumulative US$256b there since 1990, according to the Rhodium Group research firm and the National Committee on USChina Relations. For some companies, the exposure is higher. US tech giant Qualcomm generates 63 per cent of its revenue in China and needs Chinese authorities to approve its takeover of semiconductor maker NXP. Chipmaker Qorvo gets over half its revenue in China, Intel nearly 23 per cent.
The Trump administration has tried to limit the impact on American consumers. Trump’s original US$50b tariff list was heavy on industrial equipment. And his hard-line trade adviser, Peter Navarro, said the Office of the US Trade Representative and the Council of Economic Advisers were working to spare consumers. But the more the target list expands, the more likely consumers will be hurt.
Trump is betting the prospect of widespread tariffs will force Beijing to agree to reduce its trade surplus with America (US$336b in goods and services last year) and stop its forced technology transfers, cyber-theft and other aggressive policies. Yet China has shown little inclination to back off. It has promptly matched every US threat. “Trump’s view that bullying and threats will advance US long-term economic interests seems set to encounter a harsh dose of realism,” said Eswar Prasad, professor of trade policy at Cornell University. “China is in no mood to negotiate against a background of escalating threats and hostile rhetoric.” — AP