Can we avoid a trade war?
Cantillon: Trade wars have an economic cost – through lower trade, and higher consumer prices in particular
US president Donald Trump and Chinese president Xi Jinping: senior ministers on both sides have hinted at the scope for a negotiated compromise. Photograph: JIm Lo Scalzo/Filip Singer/EPA
Is there time for the US and China to avoid a trade war? Perhaps, but President Donald Trump is showing no sign yet of backing down after his announcement that the US would impose tariffs on $50 billion of Chinese imports and China’s response to do something similar to US products. Trump tweeted on Wednesday that the trade war with China had already been lost “by the foolish, or incompetent, people who represented the US” and that action was now needed with the US running a trade deficit of $500 billion a year with China.
With China outlining where it plans to impose tariffs on US products in response, the stakes are rising. The question now is whether China will make any concessions in talks now under way between the two sides, before the tariffs come into force.
The US has announced a 60-day consultation period on the latest tariffs and China will not move in advance of any US implementation. So there may be an opportunity to defuse the threat of a trade war.
However the latest US action, targeting a wide range of Chinese manufacturing and electronic products was aggressive and the scale and nature of the Chinese response was also notable and appears to have taken financial markets by surprise. Were another round of tariffs to come from both sides the economic risk would ratchet up significantly.
Worryingly, this is the just the latest in a series of tit-for-tat actions, albeit the most serious. In January the president imposed tariffs on imports of solar panels and washing machines and followed this up with threatened tariffs on steel and aluminium imports. China responded to the latter threat this week, publishing its own list of US goods on which it would apply import tariffs, including pork, wine and nuts. However, these earlier skirmishes are put in the shade by the scale of the latest moves from Washington and Beijing.
Senior ministers on both sides have hinted at the scope for a negotiated compromise. Trade wars have an economic cost – through lower trade, and higher consumer prices in particular. But Trump is clearly looking for a political win. The question is whether Beijing, doubtlessly exposed because of its reliance on exports to the US and on investment by big American firms, is prepared to give ground.