WASHINGTON (AP) -
The world’s two biggest economies fired the opening shots Friday in a trade
war that could have wide-ranging consequences for consumers, workers,
companies, investors and political leaders.
The United States
slapped a 25 percent tax on $34 billion worth of Chinese imports, and China
is retaliating with taxes on an equal amount of U.S. products, including
soybeans, pork and electric cars.
China’s commerce
ministry said Washington had “ignited the biggest trade war in economic
history.”
The United States
accuses China of using predatory tactics in a push to supplant American
technological dominance. The tactics include forcing U.S. companies to hand
over technology in exchange for access to the Chinese market, as well as
outright cyber-theft. Trump’s tariffs are meant to pressure Beijing to
reform its trade policies.
Though the first
exchange of tariffs is unlikely to inflict much economic harm on either
nation, the damage could soon escalate. President Donald Trump, who has
boasted that winning a trade war will be easy, said Thursday that he’s
prepared to impose tariffs on up to $550 billion in Chinese imports - a
figure that exceeds the $506 billion in goods that China actually shipped to
the United States last year.
Escalating tariffs
would likely raise prices for consumers, inflate costs for companies that
rely on imported parts, rattle financial markets, cause some layoffs and
slow business investment as executives wait to see whether the Trump
administration can reach a truce with Beijing. The damage would threaten to
undo many of the economic benefits of last year’s tax cuts.
A full-fledged
trade war, economists at Bank of America Merrill Lynch and elsewhere warn,
risks tipping the U.S. economy into recession.
And those caught in
the initial line of fire - U.S. farmers facing tariffs on their exports to
China, for instance - are already hunkered down and fearing the worst. The
price of U.S. soybeans has plunged 17 percent over the past month on fears
that Chinese tariffs will cut off American farmers from a market that buys
about 60 percent of their soybean exports.
“For soybean
producers like me this is a direct financial hit,” Brent Bible, a soy and
corn producer in Romney, Indiana, said in a statement from the advocacy
group Farmers for Free Trade. “This is money out of my pocket. These tariffs
could mean the difference between a profit and a loss for an entire year’s
worth of work out in the field, and that’s only in the near term.”
Even before the
first shots were fired, the prospect of a trade war was worrying investors.
The Dow Jones industrial average has shed nearly 1,000 points since June 11.
The Trump
administration has also applied tariffs on steel and aluminum from allies
like Canada and Mexico and has threatened to abandon the North American Free
Trade Agreement with those two countries. Trump has also spoken about
slapping tariffs on imported cars, trucks and auto parts, which General
Motors has warned could hurt the U.S. auto industry and drive up car prices.
The Chinese
currency, the yuan, has dropped 3.5 percent against the U.S. dollar over the
past month, giving Chinese companies a price edge over their U.S.
competition. The drop might reflect a deliberate devaluation by the Chinese
government to signal Beijing’s “displeasure over the state of trade
negotiations,” according to a report Thursday from the Institute of
International Finance, a banking trade group.
The Trump
administration sought to limit the impact of the tariffs on U.S. households
by targeting Chinese industrial goods, not consumer products, for the first
round of tariffs. But that step drives up costs for U.S. companies that rely
on Chinese-made machinery or components and may force them to pass them
along to their business customers, and eventually to consumers.
If you like Chick-fil-A
sandwiches, for instance, you may feel the impact of the tariffs. Charlie
Souhrada, a vice president of the North American Food Equipment
Manufacturers, says the duties could raise the cost of a pressure cooker
made by one of its members, Henny Penny. Chick-fil-A uses the cooker for its
sandwiches. The administration has placed “these import taxes squarely on
the shoulders of manufacturers and by extension consumers,” Souhrada said.
The Federal Reserve
is already picking up signs that the threat of a trade war is causing
businesses to rethink investment plans. In the minutes from its June 12-13
meeting, the Fed’s policymaking committee noted: “Contacts in some districts
indicated that plans for capital spending had been scaled back or postponed
as a result of uncertainty over trade policy,”
And if Trump
extends the tariffs to $550 billion in Chinese imports, there’s no way
consumers could avoid being caught in the crossfire: The taxes would have to
hit consumer products like televisions and cellphones.
Consider what
happened to the price of washing machines that were subjected to a separate
series of Trump tariffs in January. Over the past year, their price has
surged more than 8 percent, compared with a slight drop in overall appliance
prices.
Even the first
round of tariffs means that “American consumers are one step closer to
feeling the full effects of a trade war,” said Matthew Shay, president of
the National Retail Federation.
“These tariffs will
do nothing to protect U.S. jobs, but they will undermine the benefits of tax
reform and drive up prices for a wide range of products as diverse as tool
sets, batteries, remote controls, flash drives and thermostats,” Shay said.
“And students could pay more for the mini-refrigerator they need in their
dorm room as they head back to college this fall... a strategy based on
unilateral tariffs is the wrong approach, and it has to stop."