President Trump’s push to impose steeper tariffs on Chinese imports last week and Beijing’s prompt retaliation nudged the world’s two largest economies closer to a trade dispute that analysts say might end in higher prices rather than a deal.
While neither Washington nor Beijing have moved past “the point of no return” yet, they’re edging progressively closer, said Donna Kwok, an economist with Swiss lender UBS. President Xi Jinping’s government imposed duties ranging from 5 percent to 25 percent on $60 billion of U.S. goods on Friday, after President Trump proposed more than doubling the potential tariff on an additional $200 billion of Chinese goods to 25 percent.
The levies are part of a multi-front trade dispute that the White House began earlier this year with the imposition of across-the-board metals tariffs designed to prop up America’s steel industry. Duties on $34 billion of Chinese goods followed, along with the threat of charges on as much as $500 billion more of its imports as well as double-digit levies on global shipments of autos and parts.
“The U.S. administration appears committed to higher tariffs as the only solution to get China to capitulate” on a trade imbalance between the two countries, Kwok wrote. The U.S. imported $375.6 billion more goods from China than it sent to the country last year, a deficit that worries Trump even though economists have said it’s not necessarily problematic, particularly for a consumer-driven economy like that of the U.S.
Corporate executives and lawmakers — some from Trump’s own party — have added that the White House risks undermining the benefits of last year’s tax cuts with protectionist policies and, in the worst-case scenario, instigating a global downturn.
The risk of a full-blown trade war — which Kwok defines as tariffs of 30 percent or more on all goods traded between the two countries, combined with other punitive measures — has “materially risen since June,” she wrote. “While China is willing to compromise, it is not willing to do so alone whilst also accepting double-digit tariffs imposed on up to one-fifth of its exports –- making any deficit reduction a hypothetical wish list at best.”
With talks under way, it’s possible that Xi and Trump avoid further escalation, but less likely after Beijing’s previous offer of concessions for a trade deal failed to stop U.S. tariffs, Kwok wrote.
Trump, who has been given virtually complete control of the tariff process by Congress, has so far dismissed concerns that his tactics may backfire.
Tariffs are working big time. Every country on earth wants to take wealth out of the U.S., always to our detriment. I say, as they come,Tax them. If they don’t want to be taxed, let them make or build the product in the U.S. In either event, it means jobs and great wealth…..
— Donald J. Trump (@realDonaldTrump) August 5, 2018
Indeed, after the president defended his position in half a dozen Twitter posts over the weekend, it appears increasingly likely that the administration may be willing to settle for a long-lasting regime of high duties on imports if the measures fail to generate improved trade agreements, said Chris Krueger, an analyst with Cowen Washington Research Group.
….Tariffs will make our country much richer than it is today. Only fools would disagree. We are using them to negotiate fair trade deals and, if countries are still unwilling to negotiate, they will pay us vast sums of money in the form of Tariffs. We win either way……
— Donald J. Trump (@realDonaldTrump) August 4, 2018
“More and more, we are more comfortable with our theory that the tariffs are not the means to the end, but the end,” Krueger said. “It is not chess, or even Chinese Checkers, but tic-tac-toe. In Trump’s view, Fortress America has the balance sheet and more x’s and o’s, so we can wait it out.”
