Published: Wed, July 11, 2018
Global News | By Stacy Ballard

Why a trade war with China is dangerous for the U.S.

Why a trade war with China is dangerous for the U.S.

"On July 6, the United States began to impose 25 percent tariffs on $34 billion worth of Chinese imports".

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".

The first round targets Chinese industrial goods, not consumer products, in an attempt to limit the impact on United States households, but companies that rely on Chinese-made machinery or components may eventually have to pass along increased costs to customers. Businesses will have to pay 25% additional tax on $34bn of certain Chinese products they import - including aircraft tyres and commercial dishwashers.

But the conflict could soon escalate.

The U.S. Government has followed through on its threat to implement tariffs on US$34 billion worth of Chinese goods, in a major escalation of a trade dispute that will likely hit consumers and companies in both countries. Some employers will probably put hiring on hold until the picture becomes clearer.

Under the banner of his "America First" policy, Trump has also targeted other traditional trade partners of the United States, such as the European Union, Japan, Mexico and even Canada. "Markets are still hoping that the key players return to the negotiation table".

These tariffs and China's retaliation comes amid push back from other nations, including China and Mexico, in response to the Trump administration's import tariffs on steel and aluminum. These tactics include cyber-theft and requiring American companies to hand over technology in exchange for access to China's market. Trump's tariffs are meant to press Beijing to change its ways.

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China, whose economy has grown tenfold since it joined the World Trade Organization in 2001, poses a much more formidable adversary. But it's hardly the only one.

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The bank estimates that every $100bn of imports affected by the tariffs represents about 0.5% of global trade and 0.1% of global GDP.

China's tariffs on hundreds of USA goods include top exports such as soybeans, sorghum and cotton, threatening U.S. farmers in states such as Texas and Iowa who backed Trump in the 2016 USA election.

Both sides are also mulling imposing higher duties on imported cars - a measure that would also hurt Germany with carmakers such as BMW and Daimler shipping a large number of vehicles to China from their production facilities in the US. "Producers of beef, pork, chicken and seafood will also take a hit".

China "has less ammunition left in terms of imposing tariffs but history shows that there are various other measures it could take to inflict pain on U.S. companies", said Kuijs. But the risks are now priced into the market, and the Dow actually rose almost 100 points Friday to 24,456.48.

Friday's long-expected tariff volley fueled fear that a prolonged and escalating battle would deal a blow to global trade, investment and growth, while also damaging USA farmers who stand to lose revenues and potentially driving up food prices in China.

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China's reciprocal tariffs took an aim at soybeans, which accounted for $14 billion of USA exports into the Asian country previous year, the Wall Street Journal reported.

Terming the manufacturing of flags for Trump's 2020 bid as "completely normal", he said, "That is trade".

If you like Chick-fil-A sandwiches, for instance, you may feel the effects.

As a result, both United States and Chinese consumers may want to anticipate price spikes in the near future. China's tariffs similarly totals to $34 billion. Julian Evans-Pritchard from Capital Economics said: "While a weaker currency could offset some of the economic damage done by USA tariffs, the wider risks to financial stability would not be worth taking". According to tariff supporters, this can help to save jobs that might otherwise go overseas.

"No way", Riggs said about buying new equipment.

Main US benchmarks are headed for the first weekly gain in several weeks, with a consensus view that this round of tariffs, even if combined with taxes on another US$16 billion in Chinese products, will have a minimal impact on the economy. Over the past year, their price has surged more than 8 percent. They're glad someone is talking about trade.

Chinese shares, which have been battered in the run-up to the tariff deadline, slipped further from early deals and pulled Asian markets down, while the yuan currency also weakened.

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