U.S.-China trade fight likely a blip for economy
Long-term concern is over how long tariffs might last
The latest trade skirmish between the U.S. and China would barely nick the American economy — even if the two countries carried out their threats.
Looming, however, is the risk of an escalation of the dispute that could prove damaging, economists say.
The U.S. on Tuesday threatened to slap 25% tariffs on $50 billion in imports from China, including semiconductors, aircraft engines and telecommunications equipment.
China hit back on Wednesday, saying that if the U.S. follows through, it would impose 25% tariffs on $50 billion in U.S. shipments to the country, taxing 106 goods, such as soybeans, beef, whiskey, cars and industrial chemicals.
Many experts believe the threats are negotiating ploys and the two countries are likely to settle the feud in coming weeks, or at least scale back the tariffs.
If they don’t, the U.S. tariffs likely would be partly absorbed by American companies, narrowing their profits, and partly passed through to consumers, says Kathy Bostjancic, head of U.S. macro investor services for Oxford Economics.
Prices for electronics and other equipment sold in the U.S. could rise about 15%, lifting overall consumer prices, excluding food and energy, by a modest tenth of a percent.
U.S. consumer spending risk low
That could dampen consumer spending, but only marginally — by less than a tenth of a percentage point, Bostjancic says. Why? The tariff would affect just 2.5% of all U.S. imports, she says.
Meanwhile, the Chinese tariffs on U.S. products could prompt Chinese distributors and consumers to buy less soybeans, whiskey, beef and other items from the U.S. That could hurt the sales of farmers and other producers if they can’t find alternative customers in other countries.
“If China buys more (soybeans) from Brazil this summer, the U.S. will sell more to other countries,” says Michael Pearce, senior U.S. economist for Capital Economics. China is the biggest global customer for U.S. soybeans, with around $13 billion in annual purchases. Shipments to China make up 3.2% of all U.S. exports, Oxford says.
Agriculture Secretary Sonny Purdue, while traveling in Ohio, said Wednesday, “I talked to the president as recently as last night. And he said, ‘Sonny, you can assure your farmers out there that we’re not going to allow them to be the casualties if this trade dispute escalates. We’re going to take care of our American farmers.’ ”
The long-term concern for U.S. agriculture producers is how long any tariffs might last, said Will Rodger, director of policy communications for the American Farm Bureau Federation. The longer any sanctions last, the greater the chance “that there could be buyers who are no longer interested in you,” Rodger says.
Some U.S. jobs could be at risk
The impact of the fracas would be tangible for industries affected. By crimping Americans’ spending, the U.S. tariff on Chinese imports could cost tens of thousands of American jobs by early next year, says Mark Zandi, chief economist of Moody’s Analytics.
Similarly, reduced U.S. exports also could mean tens of thousands fewer jobs at U.S. manufacturers, he says.
But all told, the skirmish would be a blip in an economy that generated 2.2 million jobs last year. It would trim economic growth by less than a tenth of a percentage point this year and by close to a tenth of a percentage point in 2019, Bostjancic says. The economy is projected to grow 2.5% to 3% in each of those years. There has been no sign that analysts have lowered their earnings forecasts for S&P 500 companies as a result of the standoff, according to Thomson Reuters.
“It’s a pretty minimal impact,” Bosjancic says.
Even when including President Trump’s threatened 25% tariff on imported steel and 10% on imported aluminum early last month, the effect of the two trade battles together would shave economic growth by one- to twotenths of a percent over the next year, Zandi says.
The risk, Bostjancic says, is that Trump responds to China’s tariffs, intensifying the fight, or the dispute prompts further actions by other countries whose shipments are indirectly affected. The dispute also could hurt the renegotiations of the NAFTA trade deal with Canada and Mexico or the U.S. trade relationship with the European Union, Oxford says.