The United States has levied tariffs on $34 billion worth of Chinese goods, a long-threatened move that is expected to prompt Beijing to retaliate against American products and plunge the two countries into a costly and increasingly unpredictable trade war.
U.S. customs officers started imposing duties on $34 billion in Chinese goods at 12:01 a.m. Friday. Moments after the deadline, the Chinese Ministry of Commerce issued a statement calling the U.S. move “typical trade bullying.”
“In order to defend the core interests of the country and the interests of the people, we are forced to retaliate,” the statement said.
The ministry did not specify what measures to expect, but Chinese officials have previously said they would respond with equivalent action against a range of U.S. goods, including pork, poultry, soybeans and corn, and President Trump last month vowed to hit an additional $200 billion in Chinese goods if Beijing did so.
The moves mark a historic break with nearly a quarter-century of growing integration between the U.S. and Chinese economies. The U.S. tariffs — intended to spare consumers by aiming at industrial products — are designed to force China to drop numerous trade practices that the president says discriminate against U.S. companies.
After months of rhetorical exchanges between Washington and Beijing, the imposition of the new import taxes makes real a conflict that has rattled markets, scrambled corporate supply networks and chilled business investment.
“I don’t think this is going to get resolved easily and I think these tariffs are going to hurt the U.S. economy,” said Rufus Yerxa, president of the National Foreign Trade Council, which represents multinationals such as Coca-Cola, Ford and Microsoft.
The potential exchange of tariffs comes as trade-related cracks are beginning to appear in an otherwise robust U.S. economy, according to minutes of the Federal Reserve Board’s most recent meeting, on June 12 and 13, which were made public Thursday.
Farmers fear the loss of export sales as U.S. trading partners like China erect trade barriers in response to Trump’s tariffs, while businesses across the country “indicated that plans for capital spending had been scaled back or postponed as a result of uncertainty over trade policy,” the Fed said.
Even in the steel and aluminum industries, protected by tariffs Trump imposed in March, producers were not planning new investments to increase their capacity, the Fed reported.
“The net impact of the trade war on the U.S. economy is going to be negative,” Torsten Slok, chief international economist for Deutsche Bank Securities, said via email. “Most importantly, the risks are rising that the negative effects on the economy of the administration’s trade war will be bigger than the positive effects of the corporate tax cut.”
The Dow Jones industrial average rose almost 182 points Thursday, or 0.8 percent, to close at 24,356.74, but remains below its late-January level, when Trump imposed his first tariffs on foreign washing machines and solar panels.
Industry groups, which support pressuring China to change its trade practices, are outspoken in their opposition to the president’s tariff-heavy approach. Trump already has approved levies on an additional $16 billion in Chinese products, which will take effect later this month.
“American consumers are one step closer to feeling the full effects of a trade war,” said Matthew Shay, president of the National Retail Federation. “These tariffs will do nothing to protect U.S. jobs, but they will undermine the benefits of tax reform and drive up prices for a wide range of products as diverse as tool sets, batteries, remote controls, flash drives and thermostats.”
Administration officials say that with the economy powering along, and unemployment at an 18-year low, this is the time for the United States to confront China over its long-standing complaints.
“The trade relationship between the United States and China must be much more equitable,” Trump said last month.
The president has long been critical of China, accusing it of waging “economic aggression” against the United States. He blames Chinese trade cheating for the loss of millions of American manufacturing jobs.
Although the president has often spoken of hopes for making a deal with China, the United States and China were not engaged in negotiations in the hours before the tariffs took effect.
Trump ordered the tariffs in response to China’s intellectual property policies, including compulsory licensing requirements that coerce foreign companies into surrendering their trade secrets in return for access to the Chinese market.
He also wants China to buy significantly more American products in a bid to reduce the $375 billion U.S. trade deficit.
With no official talks scheduled, some trade experts doubt that Trump’s approach is likely to lead to a quick resolution.
“I don’t know if there is a strategy,” said former U.S. trade negotiator Wendy Cutler, a senior policy consultant at Akin Gump. “He’s been very quick to pull the trigger. I don’t know that he knows how to get off the cliff.”
Erin Ennis, senior vice president of the U.S.-China Business Council, said she has been advising member companies to prepare for the additional tariffs on $200 billion in Chinese products that Trump threatened.
Those would probably take effect in September, after a required period for public comment.
China is moving to pin the fallout on Trump, framing the United States as a bully the Asian nation is forced to confront. A state media editorial this week called the United States’ “dictatorial bent” a global threat, while officials said China will “absolutely not” take the first swing.
“The United States will be opening fire on the whole world and also opening fire on itself,” Gao Feng, a spokesman for the Chinese Commerce Ministry, said Thursday.
China’s counter-tariffs appear to be aimed at the U.S. heartland, which helped put Trump in the White House. Farmers in the overwhelmingly red Midwest fear they will lose access to China’s lucrative market and be left with the bill for excess produce and livestock.
What happens next is anyone’s guess, analysts say, since both sides have pledged not to back down.
“It’s a dark day tomorrow for global trade,” said Jörg Wuttke, former president of the European Union Chamber of Commerce in China.
Uncertainty hangs over companies, supply chains and investment plans, he said. U.S. firms in China are reporting spikes in random inspections at ports.
One U.S. manufacturer said Chinese authorities on average used to inspect 2 percent of the vehicles it sent abroad. Since June, agents have taken a closer look at every product.
“Don’t expect the ‘war’ to be out in the open in some imaginary tit-for-tat tariff battlefield,” said James Zimmerman, a partner in the Beijing office of international law firm Perkins Coie. “The real battle will be on the flanks” — in the form of unnecessary inspections, product quarantines and heightened regulatory scrutiny.
Supply chains will also suffer a blow, said Cliff Tan, East Asian head of global markets research at Japan’s MUFG Bank in Hong Kong. The initial set of U.S. tariffs could rock companies in the technology sector and raise the price of “Walmart-type” products.
“It’s like a war where everybody points the guns at themselves,” Tan said.
The conflict over U.S.-China trade has been brewing for years but has intensified rapidly in 2018. On April 3, the United States released a list of targets for proposed tariffs on $50 billion worth of Chinese imports, taking aim at high-tech and industrial goods. On April 4, China fired back.
In the months since, the tit for tat has escalated, with the United States threatening successive rounds of tariffs on goods valued at hundreds of billions of dollars. China vowed to match U.S. moves, using both quantitative and qualitative measures.
Kenneth Jarrett, president of the American Chamber of Commerce in Shanghai, said that a sense of anxiety has settled over business in the port city.
“My hope is that with this start, people will feel that the cost is too great and we will not move on to the second wave,” he said.
The U.S. president has showed no interest in a last-minute truce. Although he has called Chinese President Xi Jinping a “good friend,” he has not expressed any apprehension over what could happen in either country when the first tariffs land.
“Trade wars are good,” Trump recently tweeted, “and easy to win.”