Oct 13, 2018

The next phase of the China trade war

Illustration: Lazaro Gamio/Axios

U.S. tariffs on around $200 billion in Chinese imports are set to jump to 25% on Jan. 1, up from the 10% implemented last month. That works out to around $30 billion in new taxes to be paid by U.S. importers, many of whom will pass at least some of the costs on to U.S. consumers.

Be smart: Economics differ on the degree to which increased tariffs will affect things like GDP, corporate earnings, and inflation, but few of the predictions are broadly cataclysmic.

The bigger wildcard is how China will respond. Trump, buoyed by his self-described trade successes with Canada and Mexico, is unlikely to back down before January.

  • If Republicans continue to run Congress, Trump will maintain free reign on trade, even if it violates traditional GOP orthodoxy.
  • If Democrats gain power, trade may be one area where they largely agree with the White House.

China cannot simply apply 25% tariffs to an equal amount of U.S. imports, because they don't total $200 billion. Other possible options (and, no, this is not an exhaustive list):

  • Devalue the yuan, thus turning them into the currency manipulator Trump already says they are.
  • Severely restrict Chinese tourism to the U.S., which generated $33 billion in 2016.
  • Sell down its trillion dollar-plus stockpile of U.S. Treasury bills, or stop buying new ones. Either one could possibly increase U.S. government borrowing costs.
  • Make it much more difficult for U.S. businesses to operate in China, well beyond current concerns about IP theft and requirements that U.S. tech companies form joint ventures with local partners.

The bottom line: Trump has made America’s policy known. China’s response will determine if this becomes a full-blown trade war.

Sign up for my daily deals newsletter Axios Pro Rata here and Felix Salmon's weekly business lookahead Axios Edge here.

Go deeper

There are warning signs that Nevada could be Iowa all over again

Former Sen. Harry Reid (D) lines up to cast an early vote for the upcoming Nevada Democratic presidential caucus. Photo: Ethan Miller/Getty Images

The alarms are increasingly sounding over Nevada's Democratic caucus, which is just five days away.

Why it matters: Similar issues to the ones that plagued Iowa's caucus seem to be rearing their ugly heads, the WashPost reports.

China tries to contain coronavirus, as Apple warns of earnings impact

Data: The Center for Systems Science and Engineering at Johns Hopkins, the CDC, and China's NHC; Note: China refers to mainland China and the Diamond Princess is the cruise ship offshore Yokohama, Japan. Map: Danielle Alberti/Axios

As China pushes to contain the spread of the novel coronavirus — placing around 780 million people under travel restrictions, per CNN — the economic repercussions continue to be felt globally as companies like Apple warn of the impact from the lack of manufacturing and consumer demand in China.

The big picture: COVID-19 has now killed at least 1,775 people and infected more than 70,000 others, mostly in mainland China. There are some signs that new cases are growing at a slower rate now, although the World Health Organization said Monday it's "too early to tell" if this will continue.

Go deeperArrowUpdated 4 hours ago - Health

Apple will miss quarterly earnings estimates due to coronavirus

Apple CEO Tim Cook

Apple issued a rare earnings warning on Monday, saying it would not meet quarterly revenue expectations due to the impact of the coronavirus, which will limit iPhone production and limit product demand in China.

Why it matters: Lots of companies rely on China for production, but unlike most U.S. tech companies, Apple also gets a significant chunk of its revenue from sales in China.