Trump proposes massive increase in tariffs on Chinese goods

Donald Trump indicated on Thursday that he would ask the U.S. trade representative to look into imposing another $100 billion in new tariffs on Chinese goods.  The move is in response to Chinese retaliation for the $50 billion in new tariffs on Chinese goods announced by the administration earlier this week.

Trump is responding to Chinese retaliation for tariffs that were imposed by the U.S. in retaliation for Chinese tariffs on American goods, which were imposed by China in retaliation for U.S. tariffs on aluminum and steel.

If there's another definition of a trade war, I haven't seen it.


"In light of China's unfair retaliation, I have instructed the [United States Trade Representative] to consider whether $100 billion of additional tariffs would be appropriate," the president said in a statement. ...

Trump's announcement late Thursday that his administration could target another $100 billion of Chinese goods rattled markets and drew criticism from businesses and from within his own party.

The Chinese government responded by reiterating that it doesn't want "to fight a trade war, but we are not afraid of fighting it."

"If the United States disregards the opposition of China and the international community, and insists on unilateralist and protectionist trade practices, the Chinese side will follow through to the end and will not hesitate to fight back at any cost," the Chinese Commerce Ministry said in a statement Friday.  "We will take new comprehensive measures to respond and resolutely defend the interests of the country and the people."

Dow futures fell after Trump's announcement on Thursday and were down nearly 200 points, or 0.8%, early Friday.  That followed a day of stock market gains in the United States as investors appeared to warm to the idea that the barbs between Washington and Beijing were all talk.

It's important to note that, at the moment, the threat to impose tariffs on $100 billion in Chinese products is just that: a threat.  If it happens, it will be a huge escalation in the trade war and force China to respond with equal seriousness.

The Chinese have already targeted soybean exports by the U.S., which would hurt Iowa and other Midwestern states.  And it could get a lot worse.


This is exactly what the free traders who formerly worked in the White House feared, Trump in a macho pissing match against Chinese President Xi.  Trump has a blunt understanding of leverage and believes the worst thing he can show is weakness.  He also believes, as he tweeted, that the U.S. already is so far down on the scorecard with China that he's got nothing to lose.

Trump's new economic adviser Larry Kudlow made the rounds on television yesterday to say the first round of tariffs were a prelude to negotiations and that "backchannel talks" were already going on.  Tonight's statement says the U.S. "is still prepared to have discussions in further support of our commitment to achieving free, fair, and reciprocal trade."

If it is a "pissing match," the U.S. will have a hard time winning.





Trump has picked a fight he may not be able to win.  China has a mostly command economy and no political freedom.  If a Chinese company is hurt by U.S. tariffs, its members will keep their mouths shut and do as they're told.  There will be zero pressure on President Xi to stop a trade war with the U.S., given the oppressive nature of Chinese society.

On the other hand, Trump will be hearing it from businesses large and small hurt by the Chinese tariffs, and that includes politically important groups like farmers.  They will put pressure on Congress, who will then pressure the president. 

Not saying Trump can't stand the political gaff here at home, but it must figure in his calculations going forward.  It sounds as though there are intense back-channel negotiations going on even as I write this.  But on a basic level, China will never reform its economy to welcome importers simply because the Chinese would then lose control, and that cannot happen in a communist country.

This could get very ugly very quickly.





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