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What's becoming clear is that we're in a rapidly escalating trade war, and it's going to take a few months to roll out, if you will. But, President Trump, last night, threatened $200bn in additional Chinese imports that would be subject to a 10% tariff from China if China didn't drop its plans to retaliate against an initial $50bn in imports that were targeted for these tariffs.
This is really, the kind of - the worst case scenario that economists had feared, that we would descend into a series of tit-for-tat tariffs, and that this would destabilise what is one of the most important economic relationships in the world. What comes next? Well, this is going to take a few months to roll out. It took two to three months for the first list of $50bn in US tariffs that the Trump administration rolled out, or, first presented in April, to be finalised. We saw the list just last Friday. It will actually take effect in early July.
They have said that the same process will be used in establishing the list for $200bn in further tariffs. So brace yourself for a long, hot summer.
One of the things that the White House keeps saying is that they think they've got the upper hand in any trade war, and that's very simply because China exported some $500bn in goods to the US last year, and in return, the US exported just a $130bn in merchandise. And that has led to the trade deficit that Donald Trump is trying to close. That means, the White House argues, that they have a lot more Chinese imports that they can target for tariffs, and that the Chinese have a limited playing field if they want to do the same.
The problem is that that sort of underestimates the ability of the Chinese authorities to harass US businesses in China, or to take other forms of retaliation. They could use monetary policy to play with the level of the renminbi, the Chinese currency, and that's something we've seen China use in the past to try and gain commercial, or a trade advantage. So, we could see a resumption of that, of some kind of provocative currency policy.
We could also see them use other measures inside China to harass US businesses, sudden tax audits, visits from safety regulators. You could very simply just hold up US parts at the border, and subject them to extra inspections that are kind of cooked up, on the spot, as retaliation.
There's lots more things that China can do to harass the US in return. So, this trade war isn't in the end, going to be simply about tariffs. It's going to be about many other things.
