The prolonged trade war between the US and China took another turn in the past week, with Donald Trump announcing new increases in tariffs on Chinese imports, after the Asian nation confirmed plans for higher duties on American goods.
Trump has been warned of the potential impact of the latest tariffs, with the Americans for Free Trade Coalition noting that they could result in higher prices for consumers during the peak Christmas shopping season.
The president has continued to adopt a bullish position on China, but has also sent out conflicting messages about how trade negotiations are progressing.
An ‘unfair relationship'
The latest tit-for-tat skirmish in the trade war saw China announce new tariffs ranging between five per cent and ten per cent on $75 billion worth of goods coming into the country from the US. Agricultural products, crude oil and small aircraft are all set to be affected.
Beijing also said it would reinstate a 25 per cent duty on US car imports, which had been lifted earlier in the year as a goodwill gesture.
Trump responded by announcing a five per cent duty increase of his own, pledging that taxes on $250 billion of Chinese imports would increase from 25 per cent to 30 per cent.
The president tweeted that “in the spirit of achieving fair trade”, the US must take action to “balance this very unfair trading relationship“.
In an earlier post, Trump said American companies were “hereby ordered to immediately start looking for an alternative to China“. The White House did not provide any further information on how the president planned to force privately run businesses to withdraw from the country.
The markets felt the effects of the latest salvos in the trade war, with the Dow Jones Industrial Average losing almost 600 points over the course of the day's trading on Friday August 23rd. London's FTSE 100 and the German DAX were also down on the day.
The ‘worst possible time'
The Americans for Free Trade Coalition, which represents business groups including the National Retail Federation, the Association of Equipment Manufacturers and the Consumer Technology Association, said the latest round of tariff hikes will arrive at “the worst possible time” – on the eve of the holiday shopping season.
Higher tariffs on hundreds of billions of dollars of Chinese imports are currently set to come into effect in September and October.
“With some products facing tariffs as high as 30 per cent, many businesses will have no choice but to pass along those costs to consumers,” the Americans for Free Trade Coalition said. “Price increases will likely hit shoppers just as they are making their holiday purchases.”
There have also been warnings about the possible consequences of the escalating trade war for American jobs.
John Bozzella, chief executive of the Association of Global Automakers, said when Chinese tariffs on American cars were first imposed in 2017, US exports of finished vehicles dropped by 50 per cent.
“We can't let that happen to American workers again,” he added.
Trump's position on the ongoing trade negotiations and relations with China has been somewhat unclear over the past week.
The tit-for-tat tariff announcements at the end of last week led to a weekend of escalating tensions between Washington and Beijing, but earlier this week the president said the countries would “very shortly” resume trade talks.
“China called last night… said let's get back to the table. So we'll be getting back to the table,” he said.
Representatives of the Chinese government gave no confirmation of a telephone call taking place with their US counterparts.
This followed a weekend of conflicting messages coming out of the White House, with Trump initially appearing to admit regret about increasing tariffs, before retracting the comments. Members of his team said his words had been “misinterpreted”, and the president actually meant he regretted “not raising the tariffs higher”.
It was reported that allies of the US used the G7 summit in Biarritz over the weekend as an opportunity to put pressure on Trump and highlight the impact the US-China trade war is having on the global economy.
The latest developments have certainly had repercussions for stock markets, with Asian stocks falling on Monday, but US and European shares ending the day higher after the president took a more positive position on the China negotiations. On Tuesday, European markets generally traded lower and most Asian indexes rose.
A report from S&P Global warned that “these recent events have shaken investor confidence” and “incrementally worsened the global business and economic outlook”.