In a discouraging sign for the future of world trade, President Trump recently decided to hit $50 billion worth of Chinese imports with a new 25 percent tariff. Coming on a Friday, the move was unexpected, causing stock markets to drop both at the end of last week and the beginning of this week. Despite the move coming on a Friday, China immediately retaliated by placing an equal amount of tariffs on US exports of beef, soybeans, oil, and other commodities.
The Chinese retaliation is intended to target industries in Trump-supporting states, particularly farmers and commodity producers. American soybean farmers expect to be hit hard by the Chinese tariffs, as do US oil producers. Having recently boosted oil production to record-high levels, more and more US oil is being sold to China. The tariffs on oil won’t just hurt US oil producers, but also Chinese industries that have become reliant on imported US oil.
The saving grace of the sanctions is that they won’t take effect immediately. President Trump plans for US sanctions to go into effect on July 6. That gives at least a couple of weeks for negotiations to take place to try to end the sanctions before they started. Whether that was President Trump’s intent, to get China back to the bargaining table, or whether he intends to hold his ground and allow the sanctions to go into effect, remains to be seen.
Certainly China’s immediate retaliation isn’t a good sign, and may indicate difficulty in future negotiations. While the Chinese government should be relatively pragmatic on this issue, Chinese officials may be growing tired of the continued anti-China rhetoric coming out of Washington and could continue to retaliate against future tariff measures or even strike out with their own punitive moves. The question then becomes whether this indicates a continuing deterioration of world trade or whether this is just a high-stakes game of chicken and, if so, which side will be the first to blink.