Break it down: Understanding the U.S.-China trade tiff

Christopher Rugaber
The Associated Press

WASHINGTON – The United States and China, the world’s two largest economies, have roiled financial markets and fueled fears of a protracted trade war by threatening tariffs this week on each other’s goods.

The United States on Tuesday said it would impose 25 percent duties on $50 billion of imports from China, and China quickly retaliated by listing $50 billion of products that it could hit with its own 25 percent tariffs. Earlier in the week, Beijing announced separate import duties on $3 billion of U.S. goods in response to the Trump administration’s duties on all steel and aluminum imports, including from China.

U.S. officials sought to downplay the threat of a broader trade dispute, saying a negotiated outcome is still possible. Even so, economists warned that the tit-for-tat moves bear the hallmarks of a classic trade rift that could escalate.

“The seeds of a more serious conflict are there,” said Adam Slater, lead economist at Oxford Economics, a consulting firm.

Some of the largest American brands, from Apple to Boeing to Kentucky Fried Chicken, are increasingly intertwined with the Chinese market. They either sell billions of dollars of goods there or make some of their products in China, or both.

So h did we get here, and what might the impact be?:



President Donald Trump says Beijing is violating its free-trade commitments by pressuring foreign companies to hand over technology to potential Chinese competitors in exchange for market access.

A U.S. trade official said Wednesday that the administration was moved by concerns that China is increasing its use of unfair trade practices, expanding them from industries such as steel to high-tech industries where U.S. companies dominate.

A key irritant is Beijing’s long-range industry plan, dubbed “Made in China 2025.” It calls for establishing Chinese global leadership in electric cars, robotics and other fields. Foreign companies complain that the initiative will limit or outright block their access to those industries.

Trump has also pledged to narrow the U.S. trade deficit with China, which Washington estimated at $337.2 billion last year, a record for any country.



Not yet. The United States plans to impose tariffs on mostly machinery and high-tech goods typically purchased by businesses. The duties would mostly steer clear of the billions of dollars of consumer goods that the U.S. imports from China, such as iPhones, toys and shoes. Only about one-tenth of China’s goods exports to the United States would be affected.

Still, economists say many companies might try to pass their extra costs from the tariffs onto consumers. Prices would rise, though likely only slightly. Kathy Bostjancic, an economist at Oxford Economics, estimates they could raise inflation by just one-tenth of a percentage point.



The steps taken so far shouldn’t have much of an impact. Only about 2.5 percent of all U.S. imports are affected by the tariffs. And imports from all countries amount to just 15 percent of the economy.

Mark Zandi, chief economist at Moody’s Analytics, estimates that the tariffs threatened so far could slice U.S. growth by just one or two-tenths of a percentage point this year.

“So far, at least, this is relatively minor,” he said. “It’s going to take a lot to derail this economy.”

Still, specific industries would feel some pain if threats of higher tariffs are carried out. China is the top overseas market for U.S. soybeans. And China has included soybeans on its list of 106 products that would be hit by retaliatory tariffs.

Automakers such as Tesla, BMW and Mercedes-Benz would also be hit. BMW exports 89,000 cars a year from the U.S. to China, while Mercedes-Benz sends 65,000 cars, according to analysts at Sanford C. Bernstein. Tesla expects to sell about 15 percent of its Model S and Model X cars in China this year.



So far, no tariffs have actually been imposed. And some U.S. officials say they’re at least partly intended as a negotiating ploy. U.S. officials say they’ll hold hearings on the administration’s proposed target list of 1,300 products in mid-May and haven’t set a deadline for when the tariffs would take effect.

Nor has China set a date for imposing tariffs on the 106 products it has targeted.

“It will be a couple months before tariffs on either side would go into effect and be implemented, and we’re hopeful that China will do the right thing,” White House press secretary Sarah Huckabee Sanders said.


Associated Press Writer Joe McDonald in Beijing contributed to this report.