President Trump is doubling down on his threats of tariffs against China, escalating a trade dispute between the world’s two most important economies.
Why China and the US can still avoid a trade war – for now
In a statement late Thursday, Trump said that the US would consider slapping import tariffs on even more Chinese goods – $100 billion worth of them – doubling the amount targeted in his previous proposal.
He was responding to what he said was “unfair retaliation” by China, which on Wednesday responded in kind to Trump’s plan to levy an additional 25% tariff on $50 billion worth of Chinese imports.
On Friday, China said it would fight back “at any cost” if the US follows through with its threats.
As both sides keep up their tough talk on trade, Inkstone talked to analysts to find out how close we are to a full-blown trade war, which could derail the current global economic recovery.
Are we in a trade war?
Talk is cheap, and that’s the current status of much of the most damaging tariffs that China and US have threatened on each other.
Even if the US proceeds with the extra tariffs, it will take two months or more before these measures can be implemented.
“I don't believe that we are seeing a trade war yet,” said Hans Hendrischke, professor of Chinese business and management at Sydney University.
“Both sides have announced threats of tariffs in stages, but so far these tariffs have not yet impeded trade flows and both sides have left themselves time to negotiate,” he said.
Can we avoid one?
Patrick Chovanec, chief strategist as Silvercrest Asset Management, a US asset management firm, said the escalation of threats isn’t a good sign, but there is still time to negotiate a solution.
But even if the two countries can hold off entering a trade war for now, trade frictions may again lead to confrontation if China doesn’t cede to US’s demands.
In hitting China with import tariffs and threats of more, the US has called on the country to “implement policies that truly reward hard work and innovation, rather than continuing its policies that distort the high-tech sector,” according to US Trade Representative Robert Lighthizer.
It’s referring to China’s ambitious industrial plans, including “Made in China 2025,” that are aimed to help the country dominate certain high-tech industries using billions of dollars in state capital.
But China has no intention of adopting Western economic or political norms, Diana Choyleva, chief economist of London-based think tank Enodo Economics, wrote in a recent report.
“Even if these initial trade skirmishes are contained,” she wrote, “friction is likely to increase and lead ultimately to full-blown confrontation.”
The world’s two most powerful economies may avoid a trade war through negotiations – but not for long, if talk doesn’t translate into change.