$200 billion tariffs

Where Are We in Global Trade?

This has been an interesting, mixed, two weeks in trade.  On the one hand, the system continues to receive new shocks, particularly from US President Donald Trump.  On the other hand, trade integration is also moving forward.  The net result continues to highlight the increasingly unsettled global environment.  Firms need to focus on how to mitigate the risks facing their business operations.
Let’s start with the bad news. Two separate hearings have wrapped up in Washington.  The first focused on product categories for an additional $16 billion in 25% tariff rate hikes against goods coming from China. Regular readers may recall that the Americans first produced a list of items totaling $50 billion for new tariff increases.  The list was revised on the basis of hearings.  The first $34 billion in tariffs have already gone into force (and were met with retaliation by China on a similar amount).  But $16 billion in products were contested, resulting in a new list from the USTR. Now that hearings on the revised list of products has been completed, tariffs can be imposed at any time.  Expect them to be announced on Friday (since this seems to be the preferred approach of the Trump administration).  These new Section 301 tariffs will likely be met with $16 billion in matched retaliatory tariffs by China. 

Trade War Escalates Again: $200 Billion Announced by Americans

Hence, writes Lighthizer, the need for another $200 billion in products on today’s list.  Why?  Because China cannot respond in the same measured way to a trade escalation of this magnitude.  China does not import $250 billion in goods trade from the United States and cannot match US tariff escalation dollar-for-dollar. Therefore, it seems clear that Lighthizer believes that China will now respond “appropriately” to the original set of American complaints under the Section 301 report and stop counter-retaliating. This line of argument, however, remains deeply flawed for at least four reasons. First, simply because the Chinese cannot retaliate using tariffs to match the US escalation does not mean that the Chinese cannot retaliate.  They have myriad tools at their disposal to respond, as we have pointed out in previous Talking Trade posts.  These include targeting US services, US companies on the ground in China, US investments and so forth.