The Trump administration on Monday announced new tariffs on $200 billion in Chinese imports, a sharp escalation of its trade fight with Beijing that will also exact costs on a wide range of American businesses and consumers.
The new tariffs, to take effect next Monday, will initially be set at 10% but will climb to 25% in the new year. With Trump already having slapped 25% tariffs on about $50 billion of Chinese goods, the United States by next week will have imposed significant taxes on about half of all Chinese merchandise crossing American borders.
Trump said Monday he was prepared to ratchet up the pressure if China retaliates. Beijing previously said that it would respond with counter-tariffs on an additional $60 billion of U.S. imports.
“If China takes retaliatory action against our farmers or other industries, we will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports,” Trump said in a statement.
Treasury Secretary Steven T. Mnuchin last week sent overtures to Beijing for renewed high-level trade talks, possibly later this month, but Trump’s announcement Monday could scuttle the proposed meetings. As with the previous round, Trump issued the new duties based on the administration’s findings that China has long engaged in unfair practices hurting U.S. intellectual property, including forcing firms to hand over technologies to have access to the large Chinese market.
“It looks like both sides are digging in for protracted tensions,” said David Loevinger, a managing director at TCW Emerging Markets Group in Los Angeles and formerly a senior Treasury Department official for China affairs.
The earlier round of tariffs, in two tranches, affected mostly Chinese machinery and industrial parts, intermediary materials and components largely invisible to consumers. But the new duties will ensnare roughly 5,000 products, including many ordinary household goods.
In anticipation of more tariffs on Chinese goods, many U.S. importers and retailers have stepped up their purchases in recent weeks. That could help keep prices of merchandise in check during the Christmas season.
In addition, the new 10% tariffs will be mitigated somewhat by the recent change in currency exchange rates. Since April, the U.S. dollar has appreciated by about 9% against the Chinese yuan, which means goods from China are cheaper when they are bought with U.S. dollars.
Even so, by next spring, some business people say, the tariff hikes are likely to be passed on to consumers. That’s what Arnold Kamler, owner of Bicycle Corp. of America, fully expects.
Kamler imports about 2.5 million bikes from China and also makes about 350,000 bikes a year at his factory in South Carolina. He hopes to expand domestic production, but is not sure how much he can at this point. The new taxes will hit not only his imported products, he said, but practically all the parts, including handlebars and chains, that he imports for assembly in South Carolina, where he employs 167 workers.
“We’re all trying to get as much merchandise [as possible] before the tariffs,” Kamler said.
Other products subject to tariffs include such varied items as vacuum cleaners, baseball gloves and frozen fish. The U.S. trade representative issued a preliminary list of merchandise facing the new tariffs on July 10, but that was whittled down after U.S. officials received about 6,000 public comments and heard from about 350 witnesses over six days of hearings.
Among the 300 goods removed were smartwatches, such as the Apple Watch, and unspecified consumer electronic devices that use Bluetooth, as well as some chemicals used in manufacturing and agriculture, and consumer safety products such as bicycle helmets and child car seats.
Administration officials said they started with a 10% tariff to give businesses time to find alternative suppliers and make adjustments before the 25% rate took effect. But in many cases, it will take companies a lot longer than a few months to shift supply chains or move production to avoid higher costs.
The officials said Trump is open to negotiations with China over its trade practices, but that no talks have been scheduled. Despite numerous conversations in which U.S. officials have been clear about what they demand in order to avoid the tariffs, Chinese officials have not yet seriously engaged in talks, according to senior administration officials.
“We’ve given them chance after chance after chance,” said a senior administration official, in a briefing with reporters. “Up to this point, they have remained obdurate.”
Trump has touted that the tariffs will generate billions of dollars in revenue from China. But duties are levied on the goods when they reach the United States and are paid by American importers at the border. Senior administration officials said Chinese companies in effect would swallow the cost if they lowered the prices of their goods so that the end cost to U.S. importers after the tariffs is the same.
Retailers and dozens of trade groups in the United States had urged Trump not to go through with the new tariffs, warning that they will wreak havoc on company supply chains and hurt consumers, who will inevitably face higher prices. Some have questioned the legality of Trump’s actions.
If China retaliates with tariffs on $60 billion more of U.S. imports, as it has pledged to do, that would mean 85% of all American goods shipped to China would face additional duties. China imported about $130 billion of American products last year, while exporting about $505 billion worth of merchandise, according to U.S. figures.
The Trump administration has argued that the tariffs it has imposed thus far have not hurt the broader American economy and that they are necessary for reforming an unfair trading system. U.S. soybean and other farmers have felt the pain in particular, although the White House has sought to soften the blow with emergency relief aid.
“The tariff story may be a very good force for good,” Trump’s economic advisor, Larry Kudlow, said Monday. “People want to blame President Trump for fixing a broken system.”
But even as businesses, politicians and former trade officials broadly agree on the need to address China’s mercantilist economic behavior, many have criticized what they view as Trump’s heavy-handed and often indiscriminate use of tariffs, directed at allies and adversaries alike.
Trump has slapped tariffs on steel from Canada and the European Union, among other trading partners, trying to use them as leverage to force countries to make concessions. The administration is now trying to wrap up negotiations on revamping the North American Free Trade Agreement. A successful rewrite of NAFTA and an easing of trade tensions with Europe could help Trump in his trade conflict with China.
Many, however, worry that the escalating trade fight will slow growth, hurt financial markets and destabilize the global economy. The Trump administration is betting that China, with its economy slowing and more dependent on exports than the United States, will acquiesce to American demands. But analysts say the White House may be overestimating China’s economic slowdown or the slump in China’s stock market, which plays a relatively small role in financing.
Trump, in his statement Monday, spoke about his strong relationship with Chinese President Xi Jinping. “Once again, I urge China’s leaders to take swift action to end their country’s unfair trade practices. Hopefully, this trade situation will be resolved, in the end, by myself and President Xi of China, for whom I have great respect and affection,” he said.
China experts, however, do not see Beijing backing down anytime soon. Chinese officials have taken steps that seem to be preparing for a protracted fight, easing what had been a tightening of bank credit and in some cases pushing domestic firms to pursue alternatives to the U.S. market.
Moreover, with Beijing having moved away from collective leadership to concentrated power in one man, Xi, the central government is even less likely to capitulate, said Loevinger, of TCW Emerging Markets.
“The more the U.S. ramps up the pressure, the more it would make President Xi look weak if he’s perceived as caving in to the U.S.,” he said. Loevinger called Trump’s tariff policy a “sawed-off shotgun” approach to trade. “Plenty of other suppliers and workers will get hit, including in the U.S.,” he said of Trump’s new tariffs.
Susan Schwab, who served as U.S. trade representative in the George W. Bush administration, said she doesn’t like tariffs. But she also noted that China’s “bad behavior” has been going on for a long time and it is too early to judge whether Trump’s tariff strategy has been effective.
“This administration has gotten their attention,” she said at a forum Monday at the Center for Strategic and International Studies.