On August 23rd, President Donald Trump pressured U.S. companies to leave China and promised to hike tariffs further after Beijing unveiled retaliatory duties on US$75-billion in U.S. goods, stoking fears their escalating trade war will tip the global economy into recession.

Mr. Trump, who has accused China of unfair trade practices and pushed for a deal that would rebalance the relationship in favour of U.S. manufacturers and workers, said the U.S. will boost tariffs on US$250-billion of Chinese goods to 30% on Oct. 1, up from 25%. He also said tariffs on a further US$300-billion of goods set at 10% starting Sept. 1 will rise to 15%.

It’s unclear what legal authority Trump would be able to use to compel U.S. companies to close operations in China or stop sourcing products from the country.China said it would impose retaliatory tariffs on US$75-billion of U.S. goods, targeting crude oil for the first time and renewing punitive duties on U.S.-made autos.

 China’s Commerce Ministry said that on those same dates it will impose additional tariffs of 5% or 10% on a total of 5,078 products originating from the United States, including agricultural products such as soybeans, beef and pork, as well as small aircraft. Beijing is also reinstituting tariffs on cars and auto parts originating from the United States that it suspended in December 2018.

“China’s decision to implement additional tariffs was forced by the U.S.’s unilateralism and protectionism,” the Chinese Commerce Ministry said in a statement.

“We want a deal, but it doesn’t mean we want a deal that is not based on mutual respect or good for China’s interests,” a Chinese diplomatic source said. “If the United States levies tariffs, China will have countermeasures.”

The U.S. Chamber of Commerce called China’s move “unfortunate but not unexpected.”

“The fact of the matter is that nobody wins a trade war, and the continued tit-for-tat escalation between the U.S. and China is putting significant strain on the U.S. economy, raising costs, undermining investment, and roiling markets,” Myron Brilliant, the chamber’s head of international affairs, said in a statement.

Markets, already reeling from months of trade tensions between China and the United States, reacted swiftly to the escalating conflict.The S&P 500 fell 75.84 points or 2.6%, and the Dow Jones Industrial Average fell 623.34 points or 2.4%.

Canadian stocks were hit hard as well. The S&P/Composite Index fell 215.88 points or 1.3%, as economically sensitive Canadian energy and industrial stocks suffered some of the biggest losses. However, gold producers rallied in an apparent move by investors into safe havens.

The U.S. Chamber of Commerce urged “continued, constructive engagement” so that the world’s two largest economies could quickly reach a trade deal.

The trade dispute has stoked fears about a global recession, shaking investor confidence and prompting central banks around the world to ease policy in recent months.

The knock-on impact of the U.S.-China trade tensions was a key reason behind the U.S. Federal Reserve’s move to cut interest rates last month for the first time in more than a decade.

“The President’s trade war threatens to push the economy into a ditch,” said Mark Zandi, chief economist at Moody’s Analytics. “The President is hoping that the Federal Reserve will … bail him out, but if he continues to pursue the war, the Fed won’t be up to the task.”

Although the Trump administration has rolled out aid to farmers stung by China’s tariffs, there is growing frustration in America’s agricultural belt, a key political constituency for Trump as he heads into his 2020 re-election campaign.

“The view from much of farm country is bleak and anger is boiling over. With bankruptcies and delinquencies rising and prices falling, the frustration with the lack of progress toward a deal is growing,” the bipartisan Farmers for Free Trade group said in a statement.

China is also reinstituting an additional 25% tariff on U.S.-made vehicles and a 5% tariff on auto parts that had been suspended at the beginning of the year. Car makers such as Daimler and Tesla had adjusted their prices in China when the auto and auto parts tariffs had been suspended.

Ford, a net exporter to China, said in a statement, “it is essential for these two important economies to work together to advance balanced and fair trade.”

Source: Financial Post
Source: CBC