The ongoing trade war between the U.S. and China has intensified to full pitch, and the likelihood of a compromise is fading fast.
Actions and Reactions
On August 1, Trump announced new tariffs of 10% on $300 billion of imports from China to take effect on September 1. These are on top of those already imposed on $250 billion in imports, and mean that almost all imports from China will be included.
China can’t match this total since it imports only $178 billion in U.S.products, so it retaliated promptly by letting the yuan slide below the previous boundary of 7 per dollar. China’s aim obviously is to offset Trump’s tariffs by reducing the dollar cost of Chinese exports while encouraging local production by raising the yuan prices of imports and discouraging the purchase of foreign goods. European producers of handbags and other luxury products are already feeling the negative effects of the falling yuan.
The seriousness of Trump’s intentions is shown by the fact that the previous tariffs were largely on industrial supplies from China, at least some of which are being absorbed by cost-cutting and profit margin squeezes, as we’ve noted in past Insights.
The latest round will affect American consumers more directly since they apply to retail goods ranging from electronics to cell phones to apparel. Citing slow progress in trade talks, Trump said, “If they don’t want to trade with us anymore, that would be fine with me.” The administration apparently wanted to alleviate the concerns of American consumers and businesses by starting the tariffs at 10%, not the threatened 25%, but that would allow the president to raise tariffs later if China doesn’t make concessions.