The Costs of a Full Blown Trade War, Should One Happen

Monday, 09 Apr, 2018

The escalating trade confrontation between Washington and Beijing threatened to boil over after President Donald Trump lashed out again and China called on the European Union to join the battle, sending global stocks into the red. Here's what you need to know about the ongoing tussle. That means that if China seeks to match tariffs on goods - a classic tit-for-tat approach - China runs out of "tats" pretty quickly. This came after China said on Wednesday that it would impose 25 per cent tariffs on 106 USA products worth US$50 billion, ranging from soya beans to cars to aeroplanes. The United States hasn't said when the initial set of charges on $50 billion of goods will come into force. If the U.S. carries out its threat of new tariffs, "China has already made ample preparations and will respond forcefully and without hesitation", he said. The US list covers machinery, electronics, uranium, flamethrowers and even dental devices. Reuters calculates that the top five products affected are color TVs, cars, copier parts, aluminum alloy plates and hard drives. According to China, about 40 percent of the products would be taxed that include plastics, petrochemicals, petroleum products and specialty chemicals.

We can't overstate our concern about what the impact will be of a USA trade war with foreign nations - in particular, with China - on agriculture states like Iowa.

Washington has published a target list of 1,300 items imported from China worth an estimated $50 billion that would be hit with an extra tariff of 25 per cent ("Notice of determination", USTR, April 3). These are not due to be implemented for several weeks, meaning that the U.S. and China still have time to negotiate a deal that would avert a trade war. The Trump administration has a track record of announcing aggressive and headline-grabbing trade policies and then diluting or abandoning them in the face of stiff opposition and in exchange for comparatively minor concessions. On Thursday he proposed a fresh round of tariffs on an additional $100 billion in Chinese imports and promised to protect American farmers hurt by Chinese tariffs, a move sure to rile other United States trade partners.

The President did not provide a reason for the statement or say whether China had indicated it planned to drop its tariffs.

USA manufacturing giants that sell products in China, such as Apple, Boeing, Caterpillar, General Motors and Intel, are also expected to take a hit if China follows through on its threats. China may respond by selling U.S. Treasuries, currency devaluation, or seeking a rare earth ban. China is the biggest buyer of USA soybeans, picking up about a third of the entire US crop. The the second-largest supplier of soybeans to China, after Brazil, and soybean farmers previous year sent $14 billion worth of the crop to China. "China's response to our complaints. has been unsatisfactory".

"We pay the highest tariffs on average of any product", Steve Lamar, executive vice president of the American Apparel and Footwear Association, told CBS MoneyWatch last week. The trade war is a cause for concern for India, though a lot will depend on the details of the U.S. tariff plans and the products both these countries will be targeting.

Trump economic adviser Larry Kudlow, a free-trade advocate, tried to walk back the threats, but this president isn't necessarily guided by the opinions of even his closest advisers.

The public has until May 11 to submit comments on the proposed list of USA tariffs, with a hearing scheduled for May 15. "Nothing's happened. Nothing's been executed".