President Donald Trump upped the ante against China this week by unveiling a $200 billion tariff as his global trade war continues. And China vowed to retaliate in response.
After China imposed retaliatory tariffs in response to Trump’s $34 billion in tariffs against them, United States Trade Representative Robert Lighthizer issued a statement announcing Trump’s decision to escalate the trade war with even more tariffs, this time on $200 billion of Chinese goods.
“For over a year, the Trump Administration has patiently urged China to stop its unfair practices, open its market, and engage in true market competition,” Lighthizer said. “We have been very clear and detailed regarding the specific changes China should undertake. Unfortunately, China has not changed its behavior – behavior that puts the future of the U.S. economy at risk. Rather than address our legitimate concerns, China has begun to retaliate against U.S. products. There is no justification for such action.”
But what really puts the U.S. economy at risk is Trump’s trade war, which he is waging against Canada, Mexico, and the European Union in addition to China.
And despite the strength of the economy, Trump inherited from former President Obama in 2017, this trade war is already harming American jobs and businesses, especially farmers who live in red states.
China has already halted purchases of soybeans and pork from American farmers as soybeans prices have plummeted to new lows. Meanwhile, Trump’s trade war with Mexico is forcing a Missouri nail company to consider moving production. And BMW is shifting production of SUVs from South Carolina to China in response to the tariffs.
Chinese tariffs on American car imports is also squeezing manufacturing plants in Tennessee, which has been one of the states hit hardest by the trade war.
On Wednesday, the Chinese government vowed further retaliation if Trump enacts his $200 billion tariff, a move that would have a negative impact on both economies.
According to Reuters:
China’s commerce ministry said on Wednesday it was “shocked” and would complain to the World Trade Organization, but did not immediately say how it would retaliate. In a statement, it called the U.S. actions “completely unacceptable”.
The foreign ministry described Washington’s threats as “typical bullying” and said China needed to counter-attack to protect its interests.
“This is a fight between unilateralism and multilateralism, protectionism and free trade, might and rules,” foreign ministry spokeswoman Hua Chunying told a regular briefing on Wednesday.
And because the tariffs go beyond the total value of Chinese goods imported to the United States, Beijing will likely take other measures to retaliate, which include “holding up licenses for U.S. companies, delaying approvals of mergers involving U.S. firms and stepping up border inspections of American goods.”
China could also bar Chinese tourism to the United States and sell U.S. Treasury holdings. Selling the Treasury holdings would be disastrous for the United States as China currently holds $1.2 trillion of American debt. Dumping it would cause the dollar to drop and other nations could follow suit by dumping their own Treasury holdings.
It would be the economic equivalent of dropping a nuclear bomb. The government’s ability to pay for things relies on borrowing money right now from other nations such as China, especially since Trump slashed tax revenues by giving away $1.5 trillion to wealthy individuals and corporations.
If China does go that far, the political backlash against Trump could be massive as Americans take the brunt of the retaliatory measures. Jobs will be lost. Businesses will shutter. Prices will rise. America’s credit rating will crater. And farms will be driven into bankruptcy as the economy begins to spiral downward, erasing the progress that was made under Obama’s steady hand, and digging an even deeper economic hole that could be more difficult to recover from than the Great Recession in 2008.
That’s why Trump’s new tariffs are the greatest threat to the economy right now, and Americans had better brace themselves for it.
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