President Donald Trump has vowed that “trade wars are good and easy to win.” But as the U.S. on Friday made good on threats to impose steep trade tariffs on China, it was hard to identify any beneficiaries.
And because Trump has spurned long-standing rules that call for trade disputes to be handled by the World Trade Organization, there is little hope for a short-term resolution, according to Matthew Gold, a former U.S. trade negotiator.
“The other countries involved really can’t negotiate,” he said. “The only option is to retaliate.”
As of midnight Washington time, the Trump administration began imposing tariffs on as much as 25 percent on $34 billion in Chinese imports. In response, China implemented retaliatory tariffs on some imports from the U.S., said its foreign ministry, according to a Reuters report.
The Trump administration initiated the dispute in April, announcing the tariffs and accusing China of using “unfair” tactics to build a large trade surplus with the U.S. and expropriating American technology. The White House has also pressed Congress to tighten rules on Chinese investment in U.S. technology.
“These tariffs are essential to preventing further unfair transfers of American technology and intellectual property to China, which will protect American jobs,” Trump said.
Despite the urging of business groups and lawmakers to negotiate a truce, there was little sign Friday that the two sides would reach a compromise anytime soon. Beijing and Washington had held several rounds of high-level talks since early May, but the Trump administration has said it is considering expanding the list of targeted Chinese imports. Trump has threatened additional 10 percent tariffs on another $200 billion in Chinese goods if Beijing proceeds with its own retaliatory tariffs.
When China retaliates, higher tariffs will hit American exports from cars to soybeans. That would bring the trade war home to states that rely on agriculture and manufacturing, many of which supported Trump in the 2016 presidential election. American soybean farmers send about 60 percent of their crop to China.
So far, the tariffs represent a relatively small portion of U.S. China trade. That means the immediate economic impact of the trade war could be limited for both sides, another reason some analysts expect the dispute to linger for some time.
Economists have warned that a full-blown trade war, especially if it drags on for more than a year, could slow the U.S. economy.
“If we think about supply chain disruptions, think about stock market effects, about business uncertainty, reduced private sector confidence, all of these are already having an effect on the economy and are already weighing on economic momentum,” said Greg Daco, an economist with Capital Economics.
In the meantime, individual companies and regions will be hit harder than others.
Ford said Thursday it will hold the line on prices of its higher-margin luxury Lincoln models imported into China, absorbing the cost of higher tariffs and taking a hit to the bottom line rather than increase sticker prices. Last year, Ford shipped about 80,000 vehicles to China from North America, more than half of them were higher-margin Lincolns.
Other U.S. exporters facing higher tariffs in China will have a tough choice. They can either take a profit hit, or try to pass along the higher cost to Chinese consumers, thus making their products less competitive.
Though China’s tariff target list is light on consumer products, it includes billions of dollars worth of imported machinery and components that go into finished goods made in the U.S. That means American manufacturers will have to pay more for parts and equipment, raising prices for American consumers and making their products less competitive in foreign markets.
American companies aren’t the only ones facing the tariff squeeze. German automaker Daimler AG has warned that this years’ pre-tax profits would be lower than last year because of higher tariffs on its high-margin Mercedes-Benz sports utility vehicles exported from the U.S. into China.
Trump has also triggered a trade fight with Canada, Mexico and the European Union over steel and aluminum and has threatened to impose duties on European cars. The White House is also pressuring Canada and Mexico to rewrite the North American Free Trade Agreement and shift more auto production to the U.S.
With Trump pressing the trade war on multiple fronts, there’s little sign the administration will ease up on its demands or reach a resolution with key U.S. trade partners, according to Gold.
“I don’t think he is going to back down,” he said “I think he is going to dig this dangerous hole deeper.”