Aug 3, 2018

The world's priciest game of chicken

Data: Federal Reserve Bank of St. Louis via Bureau of Labor Statistics; Chart: Harry Stevens/Axios

Nearly half of America's annual imports from China could soon come with a 25% tax, the end result of tariffs affecting everything from individual consumer buying decisions to long-term corporate investments.

The latest: China has threatened to tax another $60 billion worth of U.S. imports, a proportionate response to a $200 billion threat from the U.S. on Wednesday. The list of threatened goods ranges from foodstuffs to machinery and auto parts.

Why it matters: President Trump, like his Chinese counterpart Xi Jinping, hopes to win at the bargaining table. But U.S. trade wars on three continents risk unleashing inflation that hits consumers, along with business uncertainty that could hamper corporate investment.

How it's playing:
  • Europe: "[S]urveys in both the United States and Europe show that businesses are nervous about the fragile détente reached in late July... When managers are afraid, they may cancel or delay investments in new equipment or expansion..." [NYT]
  • China: "The Chinese leadership... is counting on the Communist Party’s tight grip on the government, media and society, which allows Mr. Xi to impose his policies without public debate or second-guessing from rivals... Beijing officials indicate that China won’t be willing to commit to another round of negotiations with Washington unless the White House can decide on a point person to deal with China." [WSJ]
  • Trump's White House: "[China's] economy’s weak, their currency is weak, people are leaving the country. Don’t underestimate President Trump’s determination to follow through," National Economic Council Director Larry Kudlow said today on Bloomberg TV.
  • Trump's America: "Missouri-based Mid Continent Nail ... recently laid off 26 percent of its 500 workers because of a 70 percent drop in orders due to the steel tariffs. Chris Pratt, a general manager at Mid Continent, wrote in the Wall Street Journal that many colleagues still have faith in Trump 'but time is running out.'" [Reuters]

Be smart: Trump is gambling he can break someone who is an autocrat and doesn't have to worry about domestic politics. Not surprisingly, it's not working. 

Flashback: Hyperlocal headlines illustrate impact of Trump's trade war

Our deep dive: A new era of global trade wars

P.S. One surprise winner of the trade war is Hong Kong, which benefits from American exporters desperate to offload tariff-free fruit, the South China Morning Post reports.

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