How serious will the commercial war with China be?

CNN
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The first blows between the United States and China were launched in what could constitute a short -term commercial dispute with limited economic consequences or the beginning of another long and painful commercial war that reminds the first mandate of President Donald Trump.

Immediately after Tuesday at 12:01 am east time a new 10% tariff on all Chinese products sent to the United States, China responded by announcing a 15% tariff on some products that matters from the United States : Certain types of liquefied coal and gas and a 10% tariff on crude oil, agricultural machinery, large displacement cars and trucks. Those tariffs will come into force on Monday.

The Chinese Ministry of Commerce also added two American companies – the Illumina Biotechnology Company and the PVH Group fashion distributor, owner of Calvin Klein and Tommy Hilfiger – to their list of unreliable entities, stating that “they violated the normal principles of market on the market ”. The measure significantly hinders the capacity of companies to do business in China.

It is possible that Trump and the president of China, Xi Jinping, at least agree to postpone these actions to establish a deeper dialogue, as did the leaders of Mexico and Canada before the US tariffs on the products of their countries.

“If a similar agreement is not reached, I think it then has the potential to be quite intense,” said Clark Pckard, a researcher at the Herbert A. Stiefel of Commercial Policy Studies of the Cato Institute.

That result does not seem likely since Trump and XI did not talk on Tuesday. “I’m not in a hurry,” Trump told journalists that day.

The next best result would be for both countries to avoid measures that cause a climb of tensions, such as the imposition of higher tariffs. The jury is far from deciding about it.

The tariff that Trump imposed on all Chinese products, which partly linked the country’s supposed role in the supply of fentanil and other illegal drugs to the United States, can make US consumers pay more for a wide range of products. That includes electronic consumer products, toys and clothing, all among the main products that the United States imported from China last year, according to federal commercial data.

But it is not just the goods that consumers buy that could be more expensive. Many goods that the United States imports are raw materials, such as rubber, plastic and chemical products, that US companies need to manufacture finished products that are sold in stores and online.

“Increasing the costs of these imports would be difficult for those companies,” said Pckard.

At the same time, prices may not go up so much if US companies could import products that received from China from other countries that face lower tariffs. Customer loss could harm Chinese companies and cause job losses.

Similarly, American companies that export goods to China and who will face new tariffs could suffer and be forced to fire workers.

In total, the products that China import from the United States and that are subject to new tariffs amounted to US $ 23.6 billion in 2024, according to S&P Global Market Intelligence data. That total would have been much higher if China had chosen to apply an equivalent 10% tariff to all US goods exported there, which, in comparison, amounted to more than US $ 130 billion last year.

Morgan Stanley economists do not expect Trump to stop at additional 10% tariffs on Chinese products, since during the campaign he promised to reach up to 60%.

“We are still waiting for the United States to impose more tariffs on China at the end of this year as part of their broader commercial policy,” they said in a client note on Tuesday. That will probably cause more reprisals from China.

The concern that the United States does not face a unidirectional commercial war with China, but to a tripartite war, also persists. That could happen if Trump ends up applying 25% tariffs to Mexico and Canada after the new deadline of March 1 that he established, and the two countries, as well as China, retaliate with higher tariffs to US products.

The situation could get ugly for the American economy very soon.

Assuming that Canada and Mexico respond by implementing a 10% tariff over all US and China assets apply a 5% general tariff, Citibank economists predict that the US economy will contract at an annual rate of 0.8% this year and of -1.1% next year, assuming that the tariffs remain in force.

However, the Chinese economy would contain to a lesser extent than the American this year and next, while the economies of Canada and Mexico would suffer much stronger blows than the American, predict CITI economists.

That said, the risks by themselves derived from the tensions between the United States and China are “consistent,” Nathan Sheets, a global chief economist in Citi, told CNN. “New considerable increases in tariffs could interrupt supply and production chains, with adverse consequences for the use and growth of the United States.”

“It is really difficult to quantify these effects, but they would be appreciable with any measure,” he said.