The quick-fire volley of tariffs between the U.S. and China in recent days has heightened global fears of a new trade war between the world’s two largest economies. Yet while experts think the battle is likely to escalate, they also say the early skirmishes offer hope for an agreement on trade and other key issues that could head off a larger conflict.
After the Trump administration’s additional 10% levy on Chinese imports took effect Tuesday, China announced a 15% tariff on U.S. coal and liquified natural gas, along with a 10% tariff on crude oil, agricultural machinery and some cars, that is set to kick in Feb. 10. China also put limits on exports of vital minerals used in high-tech products; opened an antitrust probe into Google; and placed two American companies on an “unreliable entities” list — PVH Group, which owns Calvin Klein and Tommy Hilfiger, and Illumina, a biotechnology company with offices in China.
Notably, however, the U.S. opted to hit China with a relatively modest tariff, rather than levies of up to 60%, as President Trump had previously threatened. For its part, Beijing also pulled its punches by targeting less vital U.S. sectors, leaving the door open for the sides to reach a deal.
“I think [Mr. Trump] backed off bigger Chinese tariffs because it became clear to him that it would eliminate any possibility of negotiation,” trade policy expert William Reinsch, a former U.S. undersecretary of commerce for export administration and senior adviser at the Center for Strategic and International Studies, told CBS MoneyWatch. “It would be trade prohibitive, and they would regard it basically as an act of economic warfare. So I think he went with a number that would not prevent future negotiations and would still send a signal, so he ended up with 10%.”
For now, Wall Street investors are also taking the countries’ fresh trade sanctions in stride, betting that neither Mr. Trump nor Chinese President Xi Jinping are eager to start a mutually destructive economic war.
“It is all rhetoric for now. This is the negotiation stage,” said Bill Dendy, a financial strategist at investment bank Raymond James. “It is like two brothers starting to talk smack, and they’ll start to throw punches, but they don’t want to hurt each other. It’s not good for anybody if it gets out of hand.”
Julian Evans-Pritchard, head of China economics at Capital Economics, told investors in a report that China’s retaliatory measures have “clearly been calibrated to try to send a message to the U.S. (and domestic audiences) without inflicting too much damage.”
Even such efforts to avert a full-blown trade war could falter, spurring Mr. Trump to pursue a harder line against China, which he has long claimed uses a range of unfair practices that disadvantage U.S. businesses and workers.
“Edge of a cliff”
Reinsch said he expects Mr. Trump and Xi to hold discussions toward a deal that could lead to tariffs being repealed, or at least put on hold. “These are all leverage moves,” Reinsch said. “The purpose is to force a negotiation on whatever it is [Mr. Trump] wants to negotiate, and he is good at brinkmanship. He goes right up to the edge of the cliff like he did with Canada and Mexico, and then he backed off in a way that allowed him to declare victory.”
Mr. Trump on Feb. 1 announced 25% tariffs on imports from Canada and Mexico. But the U.S. quickly paused those duties for one month after leaders of both countries said they would increase their efforts to curb the flow of illicit drugs and migrants into the U.S.
Mexican President Claudia Sheinbaum “agreed to immediately supply 10,000 Mexican Soldiers on the Border separating Mexico and the United States,” Trump wrote on Truth Social. Meanwhile, Canadian Prime Minister Justin Trudeau said Canada would invest $1.3 billion in better protecting its southern border.
“Trudeau and Sheinbaum figured out that that’s the way to play it. If Trump is given an off-ramp where he can say, ‘Ok, I won,’ he’ll take it, and that’s what happened,” Reinsch said.
Whether such dynamics will ultimately work with China, and whether Xi is willing to indulge them, remains uncertain. After all, during Mr. Trump’s first term he repeatedly imposed tariffs on China, leading Beijing to retaliate each time. Some experts think Trump officials will have to push much harder to obtain the kind of changes likely to satisfy Mr. Trump.
“This marks the fifth time in a row that Beijing has retaliated to tariffs, rather than make needed reforms. The first four times happened during Trump’s first term and also got zero results. At some point, President Trump needs to figure out that tariffs will not get him what he wants from China,” Ryan Young, senior economist for the Competitive Enterprise Institute, an advocacy group that favors deregulation, said in a statement to CBS MoneyWatch.
Risks for consumers
The risks of an escalating trade war between the U.S. and China are considerable, including rising inflation.
“If we continue to go down this road, that can be very detrimental to the U.S. consumer because it is the consumer that pays for these tariffs, as costs not easily absorbed by industries that have tight margins already,” Dendy said.
Unless the countries find a breakthrough, “Americans can expect to pay a lot more for their technology goods, as well as their clothing and other things,” he added.
By contrast, U.S. prices are unlikely to soar in the short-term even if the conflict continues, economists note. For one, rising tariffs would likely slow economic growth, dampening inflation as consumers and businesses pare spending. Reinsch also notes that many American companies that import goods from China have prepared for the prospect of higher costs by preemptively building their inventories.
One area where U.S. consumers could feel an immediate impact — their purchases of cheap clothing from Chinese fast-fashion retailers Shein and Temu. The new U.S. tariffs on China eliminate an exemption for packages worth less than $800, meaning that low-value goods are now subject to the levies.
The U.S. receives roughly 1 billion such shipments annually.
“If you are Temu and Shein, you will probably to a hit on two grounds. They will have to start paying tariffs on dresses and T-shirts, so they will take a hit,” Reinsch said. Those costs would be passed on the shoppers. Additionally, Mr. Trump has asked U.S. Customs and Border Protection to inspect low-value packages to screen them for fentanyl, which could create shipping delays.”
Implementing the 10% tariff on China, along with the 25% duties on imports from Canada and Mexico that are now on hold, would cost the typical U.S. household more than $1,200 a year, according to the Peterson Institute for International Economics.
Discussion about this post