A trade war, which has a strong risk of roiling global financial markets, remains a grave threat as Washington and Beijing flex their muscles with no sign of negotiations to ease tensions.
The tariffs that the United States and China slapped on each other’s exports on Friday intensified the trade war, chilling consumer confidence and seriously harming the global economy.
Friday marked the start of the US duties that were promptly met with retribution by China, as Beijing accused the United States of triggering the “largest-scale trade war.”
After President Donald Trump followed through on his threat to apply 25% levies on $34bn of Chinese products, mostly machinery and industrial parts, Beijing accused the United States of “launching the largest trade war in economic history.”
It fired back with dollar-for-dollar tariffs mainly on American farm products and other foods.
US tariffs on another $16bn of Chinese goods are due to go into effect in two weeks, Trump said recently.
Trump also raised the temperature much further by stating that after the initial $50bn of goods has been targeted with tariffs, Washington could add another $500bn.
Beijing said it had no choice but to respond in kind by taxing a similar amount of US goods coming into China.
Initial market estimates of the impact of tit-for-tat Chinese and US tariffs have been modest. A China central bank adviser, Ma Jun, said US tariffs on $50bn worth of Chinese goods will shave 0.2 percentage points off Chinese growth.
With Beijing indicating it will respond with tariffs on more US imports or other corresponding actions of its own, the spectre of a full-blown trade war risks sinking China’s markets deeper into the bear territory.
Economists say that every $100bn of imports affected by tariffs would take away around 0.5% of global trade. And they have assumed a direct impact on China’s economic growth in 2018 of 0.1-0.3 percentage points, and a somewhat lower effect on US growth.
But the massive scale of Trump’s suggested new US tariffs - 10 times the initial $50bn - would blow any such modest predictions out of the water, analysts warn.
The escalating fight between the world’s two biggest economies meant that it could “take economic and political pain to get these two parties to the (negotiating) table,” Scott Kennedy, head of China studies at the Center for Strategic and International Studies in Washington told Reuters.
While US companies doing business in China agree with Trump’s complaint about Chinese intellectual property practices, many economists said they do not see tariffs pushing China into submission.
China’s commerce ministry said it was forced to retaliate, meaning imported US goods including cars, soybeans, and lobsters also faced 25% tariffs.
Meanwhile, China has lodged a case with the World Trade Organisation (WTO) against the United States, according to the country’s commerce ministry.
With the war of words between the world’s two largest economies getting escalated into a full-blown trade conflict, many fear there is expected to be a drag on global growth this year and even in 2019.
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