Trump raises risk of economically harmful U.S.-China trade war

WASHINGTON—The United States and China edged closer Tuesday 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 imported parts 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. U.S. companies, from Caterpillar to Qualcomm, would likely face obstruction from regulators in China, a market they rely on for an outsize share of sales.

The standoff, mostly over China’s sharp-elbowed drive to supplant U.S. technological dominance, threatens to tip “the U.S. 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 U.S. 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 percent— its sixth straight losing day. Stocks tumbled nearly 3 percent in Hong Kong, 2 percent in Tokyo and 4 percent in Shanghai.

Trump previously ordered 25 percent tariffs on $50 billion in Chinese goods in retaliation for Beijing’s forced transfer of U.S. technology and for intellectual property theft. Those tariffs, set to start taking effect July 6, were matched by China’s threat to penalize U.S. exports.

Beijing’s response drew the president’s ire. On Monday night, Trump told his U.S. trade representative, Robert Lighthizer, to target an additional $200 billion in Chinese goods for 10 percent 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-for-tat penalties could escalate further yet: Trump threatened tariffs on $200 billion more in Chinese products if Beijing lashes back again. Combined, the potential tariffs on Beijing could cover $450 billion — a sum equal to 89 percent of Chinese goods imported to the United States last year.

“He’s upping the ante,” Wendy Cutler, a former U.S. trade negotiator who is now at the Asia Society Policy Institute, said of Trump. “He’s willing to totally close our market to their exports… There are going to be serious consequences.”

The tariffs would start to slow U.S. growth, economists warn. Oxford Economics estimates that if Trump imposed the $200 billion in tariffs and China responded in kind, U.S. 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 $450 billion of Chinese exports. The United States sold only $130 billion of goods to China last year.