Updated Jun 20, 2018 - World

Escalating U.S.–China tariffs would have global economic impact

China-bound shipping containers in Illinois loaded with U.S. soybeans, a likely target of retaliatory tariffs by China. Photo: Scott Olson/Getty Images

After China matched the United States on its initial round of $50 billion in tariffs, President Trump threatened tariffs on an additional $200 billion in Chinese goods — and then threatened to respond to any further Chinese retaliation with yet another $200 billion in tariffs. That sounds a lot like a real trade war.

Why it matters: It is possible to pick a tariff list that covers $50 billion of imports from China that does minimal damage to the U.S. economy. It isn’t possible, however, to come up with a list that covers $450 billion in imports without including sectors where China is the dominant supplier — and thus where tariffs are likely to raise consumer prices.

The big picture: In a trade spat, it usually makes sense to put tariffs on the final product, not on parts. But in the specific case of trade with China, there are often more opportunities to substitute away from Chinese-made parts than Chinese-made final goods. Especially in the short term, tariffs on imported final goods would mean higher prices for U.S. consumers, not new opportunities for U.S. workers and firms.

And with U.S. imports of Chinese goods totaling $500 billion, only about $50 billion of imports could be excluded. That means the threatened tariffs will cover a wide range of consumer goods: Cell phones, computers and computer accessories account for $150 billion; clothes for over $50 billion; and furniture, cooking equipment and TVs another $50 billion.

What’s next? China imports somewhere between $130 billion (per the U.S.) and $150 billion (per China) from the U.S. It cannot match the U.S. dollar for dollar to $250 billion, let alone to $450 billion. As the scale of tariffs rise, so does the risk that China will respond asymmetrically, either by threatening the sales of U.S. firms operating in China or by engineering a depreciation in China’s currency.

The bottom line: The actual impact on China’s economy will be smaller than the amount of trade covered by the tariffs ($250 billion is about 2% of China’s GDP, $450 billion would be a bit less than 4%). But the scale of the threatened tariffs — and the difficulties China will face in responding to them without hurting its own economy — is now large enough to have a real impact on the overall global economy. This isn’t just a trade issue anymore.

Brad Setser is the Steven A. Tananbaum Senior Fellow for International Economics at the Council on Foreign Relations.

What's next

Honoring Kobe Bryant: Sports stars, politicians and celebrities mourn NBA great

Kobe Bryant on court for the Los Angeles Lakers during the Sprite Slam Dunk Contest on All-Star Saturday Night, part of 2010 NBA All-Star Weekend at American Airlines Center in Dallas in February 2010. Photo: Jed Jacobsohn/Getty Images

Sports stars, politicians and celebrities paid tribute to NBA legend Kobe Bryant, who was killed in a California helicopter crash alongside his 13-year-old daughter, Gianna, and seven others on Saturday. He was 41.

What they're saying: Lakers great Shaquille O'Neal said in an Instagram post of his former teammate, "There's no words to express the pain I'm going through now with this tragic and sad moment of losing my friend, my brother, my partner in winning championships, my dude and my homie. I love you brother and you will be missed."

Go deeperArrow17 mins ago - Sports

Bolton alleges in book that Trump tied Ukraine aid to investigations

Photo: Alex Wong/Getty Images

President Trump's former national security adviser John Bolton alleges in his forthcoming book that the president explicitly told him "he wanted to continue freezing $391 million in security assistance to Ukraine until officials there helped with investigations into Democrats including the Bidens," the New York Times first reported.

Why this matters: The revelations present a dramatic 11th hour turn in Trump's Senate impeachment trial. They directly contradict Trump's claim that he never tied the hold-up of Ukrainian aid to his demands for investigations into his political opponent Joe Biden.

Impeachment: Then & now

Illustration: Sarah Grillo/Axios

We are living in a measurably different political and media landscape than when the Senate acquitted President Bill Clinton of impeachment charges in 1999.

The big picture: These dynamics are setting the pace as President Trump’s legal team speeds through arguments to seek a fast acquittal.