The Trump administration took the most significant steps to date Friday in a brewing trade war that businesses fear will wound the economy, push up consumer prices and spur job losses.
The U.S. Trade Representative officially imposed tariffs on $34 billion worth of Chinese goods and is considering another $16 billion within the next two weeks. President Trump has threatened to increase the overall amount of as much as $500 billion.
China warned that the new tariffs violate rules set by the World Trading Organization and said the actions “launched the largest trade war in economic history.”
“This kind of taxation is a typical trade bullying-ism, which is seriously jeopardizing the global industrial chain and value-chain security, hindering the pace of global economic recovery, triggering global market turmoil, and will affect more innocent multinational corporations, general enterprises and ordinary countries,” the Ministry of Commerce said in a statement.
[Related: Trump forges ahead on China tariffs despite business backlash]
Outside of new tariffs, businesses are also concerned that China could seek to retaliate in other ways, including slow-rolling the permitting process to enter the country.
Despite fears of a trade war, exports to China in May grew 7.6 percent to nearly $11 billion and imports grew 4.81 percent to almost $44 billion, according to data from the U.S. Census Bureau. The economy also gained 213,000 new jobs in June, beating expectations and signaling continued growth amid the escalating trade rhetoric.
The major U.S. stock indexes reacted tepidly to the new China tariffs. The Dow Jones Industrial Average dropped 0.19 percent at the start of New York trading before rallying, while Nasdaq and the S&P 500 rose slightly on the jobs numbers from the Bureau of Labor Statistics.
The metals tariffs and the duties on China so far aren’t enough to disrupt the U.S. recovery, by any means,” Luke Tilley, chief economist at Wilmington Trust, said in a recent interview. Even levies on an additional $400 billion of goods that Trump suggested wouldn’t cause a recession, but “the escalating rhetoric and those types of figures would be enough to counteract much of the benefit that we would expect to see from increased consumer spending from the tax legislation.”
Other economists and analysts have also cited the danger of threats and counter threats, which could shake business and investor confidence and rattle a long-running bull market in the U.S. The president, however, has shrugged off such fears. After threatening $400 billion of Chinese imports, he went on to raise the ante to $500 billion in a televised interview.
Reaching such amounts would be difficult without imposing a tax on consumer goods, which would dampen any growth in consumer spending this year and next, Tilley said. With the U.S. economy deriving more than 70 percent of its $20 trillion in value from consumer spending, that could be a significant blow.
How far Trump actually wants to go with import duties, and how much of his comments are simply a negotiating tactic, is difficult to discern. “This is the president who wrote ‘The Art of the Deal,” said Wayne Wicker, who oversees $28.8 billion in retirement plans for Washington-based ICMA-RC.. “Investors have to keep that in the back of their minds.”
Outside of the financial impact, the Trump administration’s trade agenda could have a reverberating effect on the upcoming 2018 midterm elections. Democrats are hoping to take back the House, while Senate Republicans are looking to bolster their majority by ousting incumbents in states that Trump won in 2016. But officials in states like Montana, where Democratic Sen. Jon Tester is facing a tough re-election campaign, say the brewing trade war is a top concern.
“These tariffs have been strongly opposed by pretty much everyone across the board in Montana,” Ken Fichtler, chief business development officer in Montana’s Office of Economic Development, said previously. “The impending trade war is going to be very problematic for everyone.”
In its retaliatory tariffs, China is expected to target products like soybeans, a popular export from states that supported Trump, like Iowa and Minnesota. Americans for Farmers & Families said the agriculture industry is “staring down a dark path with no signs of relief in sight.”
“We are counting on the administration and Congress to reach a resolution on responsible trade policies – before we’re forced to shut down our operations for good,” the group said in a statement.
The measures could also hit manufacturers of airplanes and aircraft parts, a potential ding on swing states like Pennsylvania, which gave its 20 electoral votes to Trump in 2016 and where Democratic Sen. Bob Casey is up for re-election. The manufacturing industry at large added 36,000 jobs in June, the most so far this year.
The Trump administration previously imposed a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports. The European Union, Canada and Mexico have all imposed retaliatory duties targeting specific states to heighten political pressure. The EU, for example, imposed tariffs on bourbon, a top product of Kentucky which is represented in the Senate by Majority Leader Mitch McConnell and supported Trump in the 2016 election.
Businesses have warned that the brewing trade war could have a drastic impact on U.S. growth and undermine benefits from the GOP-led tax law.
“It’s purposeful disruption in the sense that there’s no alternative being presented; it’s just ‘take down the old,’ but there’s no alternative of what we are supposed to be dealing with,” Peter Bragdon, executive vice president and general counsel at Columbia Sportswear Co., previously told the Washington Examiner. “If that’s pro-business, I don’t know what anti-business looks like.”
Business executives have warned officials at the Federal Reserve that they are planning to scale back projects as the trade rhetoric heats up. Capital spending spiked earlier this year as companies took advantage of the Republican-only backed tax law.
Harley-Davidson recently announced it would shift some U.S. production overseas to avoid the retaliatory tariffs. Trump has repeatedly blasted that decision and said earlier this week his administration is talking to competing motorcycle manufacturers that may want to increase their U.S. presence.
Trump is also weighing a new 25 percent tariff on automotive imports. General Motors previously warned that such an action could force the manufacturer to lay off workers. Should the White House move forward on that threat, it could exacerbate concerns over the political impact of the administration’s trade agenda. U.S. auto exports to Canada, for example, totaled $24.2 billion last year, about 38 percent of total American shipments, from states like Kentucky, Michigan and Missouri, which all supported Trump in the 2016 election.
The Republican-friendly U.S. Chamber of Commerce on Monday launched an opposition campaign to the Trump trade agenda. Several top Republican lawmakers, including House Speaker Paul Ryan, have also raised concerns over the administration’s recent actions.
