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How the "Biggest Trade War in Economic History" Is Playing Out

How the "Biggest Trade War in Economic History" Is Playing Out
Issue Time:2018-07-11
It’s official: The United States and China are in a trade war after the Trump administration imposed tariffs at 12:01 a.m. Friday on $34 billion worth of Chinese products.
Beijing immediately retaliated with its own penalties. The Chinese government is targeting a range of American products with tariffs, including pork, soybeans and automobiles.
The prospect of rising costs for imports is expected to impact businesses and consumers alike. The United States has also imposed tariffs on imported steel, aluminum, solar panels and washing machines from countries like Canada, Mexico, the European Union and Japan.
For now, it is unclear how — or whether — the trade war might conclude. On Friday, China’s, Ministry of Commerce said the United States “has launched the biggest trade war in economic history so far,” and President Trump on Thursday continued to threaten Beijing with escalating tariffs on as much as $450 billion worth of Chinese goods.
With its own tariffs on American goods, China would join other countries that have retaliated against Mr. Trump’s trade measures, bringing the total value of affected American exports to about $75 billion by the end of the week. That is still a small fraction of the $1.55 trillion of goods the United States exported last year, but in some industries, the pain is becoming intense.
The tariffs on China, the world’s largest manufacturing hub, affect a much larger share of products and a greater percentage of companies that rely on global supply chains, potentially hurting American companies even more than the Chinese firms the Trump administration is targeting. Research by Mary Lovely and Yang Liang of Syracuse University shows that in the field of computer and electronics products, for example, non-Chinese multinational corporations operating in China supply 87 percent of the products that will be affected by tariffs, while Chinese firms send only 13 percent.
A 2011 study by the Federal Reserve Bank of San Francisco showed that, for every dollar spent on an item labeled "Made in China," 55 cents went for services produced in the United States. The risks that a trade war posed to the economy was a substantial topic of discussion when Fed policymakers met three weeks ago, according to minutes of the meeting released Thursday.
Most Fed officials at the table “noted that uncertainty and risks had intensified,” and that tariffs and other trade measures “could have negative effects on business sentiment and investment spending.”
As of Friday morning, companies like Husco International, a Wisconsin-based manufacturing company that makes parts for companies like Ford, General Motors, Caterpillar and John Deere, now face a 25 percent increase on a variety of parts imported from China. Austin Ramirez, Husco International’s chief executive, said that increase would immediately put him and other American manufacturers at a disadvantage to competitors abroad.“The people it helps most of all are my competitors in Germany and Japan, who also have large parts of their supply chain in Asia but don’t have these tariffs,” he said.
The Trump administration drafted its initial tariff list to spare consumers, and many of the products that American families purchase from China, like flat-screen TVs and shoes, are not directly hit on Friday. But American companies that depend on Chinese products are expected to feel the pinch, given the tariffs focus heavily on the kind of intermediate inputs and capital equipment that businesses purchase and ultimately sell both in the United States and abroad.
Similarly, China has become a key market for brands such as Apple, Nike, Starbucks and General Motors. Consumer boycotts have proven effective in Beijing's earlier disputes with South Korea, Japan and the Philippines. But targeting American goods could be trickier. The iPhones, Chevrolets and other goods that American companies sell in China are often made in China, and by Chinese workers.
Also, health and hygiene concerns have led China's increasingly well-off shoppers to prefer food imported from the United States or elsewhere.
Still, some consumers said they could imagine making do without iPhones or American cars as a way to strike back against Washington.
"Of course I want China to fight back," said Cathy Yuan, 32, who was shopping at an upscale Shanghai supermarket on Friday. "We are defending our rights as a nation."