Trump Launches Trade War With China, Blowback Imminent

The American-Sino trade war has begun. On Friday, the US and China launched the first volleys in a growing economic conflict, with each side imposing a 25% tariff on $34 billion worth of goods. And the immediate effects are ... negligible. The long-term effects could be catastrophic.

None of this is surprising. Candidate Trump campaigned hard against China’s proclivity for counterfeit goods – no secret – and President Trump has expended gallons of (some would say, bipartisan) political capital demonizing the People’s Republic.

And he’s not entirely wrong – according to one estimate, Chinese counterfeit goods cost the American economy up to $600 billion annually.

But a trade war has an obvious reciprocal effect – while the U.S. targeted high-tech electronics, including semiconductor chips and machine parts, China set their sights on U.S. agricultural products and automobiles.

And even without the reciprocity, comprehensive tariffs can trigger some nasty blowback. Trump’s previous duty on cheap solar panels did serious damage to a thriving American industry – solar panel installation – which relies heavily on Chinese imports (for up to 80% of its supply). Jobs have been lost.

It’s worth internalizing that lesson at the outset of what Commerce Ministry spokesman Gao Feng is deeming “the largest trade war in economic history” between the world’s two largest economies, with a combined GDP of $30 trillion.

As of Friday, U.S. stocks remained steady – the tariffs were widely expected – but the trade war threatens to erode consumer confidence, create instability in the marketplace, and damage both nations’ GDP.

A full-blown trade war could slash .25% from the GDPs of both nations. Oh, and Trump is threatening to target up to $500 billion worth of Chinese goods.

Even the U.S. Chamber of Commerce spoke out against the tariffs.

“The administration is threatening to undermine the economic progress it worked so hard to achieve,” said Chamber President Tom Donohue. “We should seek free and fair trade, but this is just not the way to do it.”

For his part, China’s Premier, Li Keqiang, claimed that “Trade war is never a solution. No one will emerge as a winner from trade war, it benefits no one.” I doubt China’s Head of Government gets half as perturbed over his country’s immense counterfeiting operation, but I digress.

We’ll have more as the story develops and as the tariffs climb skyward.