Playing with fire

ULL back from the brink” is the stern advice China gave the US administration after Donald Trump signed an executive memorandum on Thursday imposing restrictive tariffs of up to $60 billion on Chinese imports and restricting Chinese investments in the US.

China’s initial response, although measured, signals the escalation of a trade dispute triggered by a protectionist-minded US administration prone to taking unilateral decisions.

The Chinese embassy in Washington warned that “China would fight to the end to defend its own legitimate interests with all necessary measures”.

That China’s reciprocal measures will be taken in two stages leaves room for further negotiation and dialogue to resolve the trade disputes between the world’s two largest economies in order to avoid a trade war, which would disrupt the continuing recovery of the global economy.

“China doesn’t hope to be in a trade war, but is not afraid of engaging in one,” the Ministry of Commerce said. “China hopes the United States will pull back from the brink… and avoid dragging bilateral trade relations to a dangerous place.”

Washington would do well to heed Beijing’s advice, because a trade war would hurt China, but not leave the US unscathed if China retaliates. According to economists’ calculation, a trade war may slow down US economic growth, raise consumer goods prices and increase unemployment, especially in the Rust Belt, contrary to Trump’s claim that American jobs would be protected because of trade actions against China.

According to a study by the University of Pennsylvania a full-blown trade war would, over time, offset any gains of economic growth from the US’ newly implemented tax cuts; it would also eliminate a year’s worth of wage growth.