China is subject to significant US tariffs already and has been since Trump’s first term. But the blanket nature of today’s new levies from the White House on every single goods import from China – from toys, to mobile phones, to clothes – is new and significant.
Beijing’s promised tariff retaliation – including new levies on imports from the US of oil, agricultural machinery and some cars – is far less sweeping. Yet the retaliation moves us into the arena of tit-for-tat action, where the country experiencing the tariffs feels it has no choice but to hit back to show its own citizens it can’t be pushed around by a foreign power.
This is the dictionary definition of a trade war, external – and economic historians warn they tend to generate their own momentum and can rapidly spiral out of control.
Trump has used just about every justification under the sun for tariffs, from raising more tax revenue to boosting American manufacturing and rebalancing trade. But one thing recent days confirm is the new president regards them as a powerful way to compel other nations to do what he wants.
He threatened massive and punitive tariffs on Colombia when it initially refused to accept US flights of its deported nationals, but he lifted the threat when Bogota acquiesced.
The White House might also point to the response of Mexico and Canada yesterday as evidence tariff threats yield results. He had threatened to ride roughshod over his own North American free trade deal unless those nations tightened up on border control. Although how much extra those two countries actually promised yesterday on border security relative to what they were already doing is open to question.
Yet the problem with the White House using tariff threats in this way is that if other countries don’t back down – or agreements are not reached – Trump might well feel he has no choice but to follow through or risk losing all credibility. And the targeted country might feel it has to respond with its prepared countermeasures, even if they would prefer not to.
That high-risk dynamic – where things could slip out of control in an atmosphere of distrust and political pressure – is why many analysts and economists are far from comforted by how things have played out with Mexico and Canada this week.
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