Trade War Begins In Hours, As Trump Confirms China Tariffs To Start At Midnight

If China was hoping for Trump to relent, and back down in the last minute before the start of tonight’s China tariffs, set to take place at 1 minute after midnight, it will be disappointed.

Speaking to reporters aboard air Force One on route to Montana, the president said that the planned tariffs on Chinese goods would go forward just after midnight, as previously reported, and in so doing will deliver on a promise to his political supporters that risks provoking retaliation and, if taken far enough, sending the global economy into a recession.

Trump then said that another $16 billion of goods could follow in two weeks, before suggesting the final total could eventually reach $550 billion, a figure that exceeds all of China’s annual goods exports to the U.S., but is below the total calculated recently by Goldman Sachs, which saw as much as $800 billion in total tariffs on Chinese goods.

As previously reported China has vowed to hit back moments after the Trump decision is enacted – so it does not appears to be the initiator – by imposing its own $34BN of tariffs in kind on goods ranging from American soybeans to pork, which may in turn prompt Trump to raise trade barriers even higher.

“Once these tariffs start going into effect, it’s pretty clear the conflict is real,” Robert Holleyman, former deputy U.S. trade representative under Barack Obama and now a partner Crowell and Moring, told Bloomberg. “If we don’t find an exit ramp, this will accelerate like a snowball going down a hill.”

Which of course is what a trade war is all about.

Meanwhile, as if it hasn’t been mocked enough already, such American companies as Harley-Davidson are among those set to suffer from China’s retaliation. Additionally, American businesses from Apple and Walmart to General Motors all operate in China and are keen to expand. As Bloomberg notes, that hands Chinese President Xi room to impose penalties such as customs delays, tax audits and increased regulatory scrutiny “if Trump delivers on his threat of bigger duties on Chinese trade.”

Ultimately, the question is who will be impacted more: the US or China: to be sure, Chinese stocks have taken a far greater beating than their US peers in recent weeks, entering a bear market, as concerns about the trade war have mingled with worries about China’s ability to control its debt and maintain growth. Meanwhile, U.S. stocks are up slightly more than 2 percent this year as investors have weighed the threat of trade frictions against the strong performance of the U.S. economy.

As the war of trade attrition begins, China may have more to lose: according to SocGen economists, the drag on the Chinese economy could be close to 1% of GDP and cost 3-4m Chinese jobs, while for the US, the drag on GDP would be more modest at just 0.1-0.2%. Both estimates assume no further escalation.

Other banks are more sanguine: according to BofA head of economics, Ethan Harris, the impact of the first round of tariffs on $34 billion in Chinese goods will be “quite small” but he doesn’t “see the war ending until there are casualties.”

“This plays out over the next few months, until both sides start to feel a little pain and realize this isn’t a bloodless march to victory,” said Harris.

And since the U.S. imports much more from China than the other way around, it gives the U.S. an advantage in a tariff dispute, at least in the beginning..

That means Beijing will likely focus on introducing bigger regulatory or tax burdens on American companies who operate in China or want to tap its growing market. It could even take the drastic steps of stopping to pretend it is not devaluing the yuan or reducing its $1.2 trillion holdings of U.S. Treasuries, measures that would hurt it as well as the U.S.

And while China’s response is yet to be determined, the biggest wildcard in the upcoming trade war is the surprise factor:

In the past, the U.S. used its economic clout to win trade skirmishes with developing countries, said James Boughton, a senior fellow at the Centre for International Governance Innovation in Waterloo, Ontario. China, whose economy has grown tenfold since it joined the World Trade Organization in 2001, poses a much more formidable adversary.

“The dynamic is different from anything we’ve seen,” said Boughton. “China has an ability to ride out this kind of pressure, to weather the storm, that a lot of countries didn’t have in the past.”

So what happens, and who will ultimately win? The answer remains to be seen, but the real war begins tonight at midnight.


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