China-U.S. tariffs: Trade war will push prices up, growth down

Posted July 08, 2018

John Heisdorffer, a soybean grower from Iowa and president of the American Soybean Association, said the group had appealed to the Trump administration to find other solutions to addressing trade issues with China.

The considering an additional 25% duty on another $16 billion of Chinese goods, and China has said it will follow with similar measures if the U.S. goes ahead with the second batch of tariffs, according to previous statements from the two sides.

Both the United States and China imposed punitive tariffs on each other's exports today in what Beijing calls "the biggest trade war in economic history".

As the day dawned across the USA on Friday, a new economic reality dawned with it: The tariffs long threatened against billions of dollars in Chinese goods took effect just at midnight ET while many Americans were sleeping - but Beijing was ready immediately with a wake-up call of its own.

"In a statement released shortly after the midnight ET, China's Ministry of Commerce called the tariffs - which impose a 25% duty on $34 billion worth of Chinese exports to the USA - "typical trade bullying" and warned that retaliation would be swift".

Beijing said it would be "forced to make a necessary counterattack" after USA tariffs on $34bn of Chinese goods came into effect.

China accused the U.S. of launching the "largest trade war in economic history", saying it was "typical trade bullying" that could trigger "global market turmoil".

He described the USA actions "a violation of world trade rules" and accused Donald Trump of "initiating the largest-scale trade war in economic history".

After that, the hostilities could intensify: Trump said the ready to target an additional $200 billion in Chinese imports - and then $300 billion more - if Beijing refuses to yield to USA demands and continues to retaliate.

The two countries have engaged increasingly in verbal sparring in recent months, but Friday's pair of haymakers has dramatically escalated the trade dispute - and that has investors across the world worries about what comes next.

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Xi's government has expressed confidence China can hold out against US pressure, but companies and investors are uneasy.

With only US$130 billion in USA imports to retaliate against, Beijing has said it will take "qualitative" and "quantitative" measures against the U.S., triggering fears it could cripple the operations of United States multinationals operating there.

The US trade deficit in goods with China now stands at about $375bn.

"By threatening unilateral action without having any allies and not reducing domestic discord on trade, the Trump administration has invited China to stand tough", said Scott Kennedy, director of the Project on Chinese Business and Political Economy at the Center for Strategic and International Studies.

"Our biggest customer and the biggest customer that consumes soybeans in the world is China, and Chinese people buy about sixty percent of the soybeans that are grown in this country alone", said Cannatella. "What we will likely see happen in the short-term is apples that were destined for export markets will instead overhang the USA market", she said.

Top trade representatives from China and the US have held trade negotiations in recent months.

Businesses around the United States told the central bank that spending plans had been scaled back or postponed and they also warned of further adverse effects from the trade conflict, according to a Federal Reserve survey.

One ship laden with US soybeans steaming toward China - the bulk carrier Peak Pegasus - appears to have lost the race to arrive before the import duties were imposed.

Accusing China of conducting "unfair" trade practices, Trump has pledged to protect USA intellectual property, stop noneconomic transfers of industrially significant technology and intellectual property to China, and increase access to the Chinese market for American products. US stocks edged higher on Thursday, however, amid hopes that American trade tensions with Europe may ease after comments from German Chancellor Angela Merkel.

Donald Trump's trade war could potentially drag in products from other American trade partners, undermining relations.

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