By imposing tariffs on US$200 billion more in Chinese goods starting next week, President Donald Trump has intensified his trade war with Beijing and triggered the likelihood of price increases for many American companies and consumers.
Beijing has said it will swiftly retaliate against American exporters — a move that stands to hurt US farmers and other companies that sell their products to China. Beijing may also raise obstacles for US companies to do business in China.
Here's a look at what's happening and its likely impact.
WHAT IS THE US DOING?
The Trump administration will begin taxing US$200 billion in Chinese goods starting Monday. The tariffs will start at 10 per cent and rise to 25 per cent in 2019.
The target list is huge, ranging from rattan mats to burglar alarms to bicycles. But the administration struck some items from the originally planned US$200 billion tariff list, including bicycle helmets and other child safety products. And, in a victory for Apple Inc., smart watches and some other electronics products won't be subject to the new tariffs, either.
The administration and Beijing have already imposed import taxes on $50 billion worth of each other's products. Beijing's target list of US goods to penalise was heavy on agriculture.
That's hardly a coincidence. Its tariffs are meant to deliver pain to American farmers, who overwhelmingly backed Trump in the 2016 election and whose interests are represented by powerful lobbyists and members of Congress. Exports to China account for about 60 per cent of the overseas sales of American soybean farmers, who stand to lose sales as a result of China's tariffs.
WHAT'S BEHIND THE US-CHINA RIFT?
The Trump administration has accused China of using predatory tactics in a lawless drive to overtake America's technological supremacy. US officials point to Beijing's long-range development plan, "Made in China 2025," which calls for creating powerful Chinese entities in such areas as information technology, robotics, aerospace equipment, electric vehicles and biopharmaceuticals.
Foreign business groups argue that "Made in China 2025" is unfairly forcing them to the sidelines in those industries. The Office of the US Trade Representative concluded after an investigation that China's tactics range from requiring US and other foreign companies to hand over technology in return for access to the vast Chinese market to outright cyber-theft. The US also asserts that Beijing uses state money to buy American technology at prices unaffordable for private companies.
The Trump administration said the new tariffs on an additional US$200 billion in Chinese imports was a response to Beijing's failure so far to end those tactics.
WHAT'S THE LIKELY IMPACT FROM A US-CHINA TRADE WAR?
It's not entirely clear. Economists at Bank of America Merrill Lynch have warned that a full-fledged trade war, especially one that lasts more than a year, would slow the US economy. By disrupting supply chains, eroding business confidence and heightening uncertainty, a trade war, they say, could "push the economy toward full-blown recession" and jeopardise America's economic expansion — the second-longest on record.
Besides American soybean farmers, American manufacturers are also being squeezed. Machinery and components used in finished goods made in the United States have been affected. US manufacturers are having to pay more for parts and equipment, thereby putting them at a competitive disadvantage to foreign rivals.
ISN'T THE US ALSO SPARRING WITH OTHER TRADING PARTNERS?
Trump is battling in just about every direction. He has imposed tariffs on imported steel and aluminum — action that has drawn retaliatory tariffs from US allies like Canada, Mexico and the European Union. The president is also threatening to impose tariffs on imported vehicles and auto parts on the grounds that they pose a threat to America's national security.
Trump also wants to replace the North American Free Trade Agreement, which includes the United States, Mexico and Canada, with a new agreement that would shift more auto production to the US The administration has already reached a deal with Mexico that excluded Canada. Talks to keep Canada in a North American trade bloc have been ongoing, with the two longtime allies divided over such issues as Canada's dairy market and US efforts to shield drug companies from generic competition.
By brawling with America's friends, critics say, Trump has squandered an opportunity to build a united front against China. After all, Europe, Japan and other rich countries have the same complaints about Chinese trade practices that America does.
IS THERE ANY REASON TO EXPECT A RESOLUTION?
There have been periodic reports that the Trump administration was on the verge of resuming talks with Beijing. Informal communications are still going on, administration officials have said, but no formal talks are scheduled.
For a time, it looked as though peace might be at hand. In May, Treasury Secretary Steven Mnuchin declared the trade war "on hold." The Trump administration suspended its tariffs after Beijing agreed to increase its purchases of US goods, especially in agriculture and energy. The idea was that China's additional purchases would shrink its trade surplus with the United States. Yet the cease-fire was short-lived. Critics dismissed Beijing's commitments as vague, and Trump decided to proceed with the tariffs after all.
HAVE THERE BEEN TRADE WARS BEFORE?
You'd have to go back to the 1930s to find anything close to the hostility between the US and its top trading partners right now. During the Great Depression, many countries, including the United States, closed their markets to imports. A plunge in global trade likely worsened the Depression.
Many less intense trade conflicts have followed. President Ronald Reagan slapped tariffs on US$300 million worth of Japanese imports in a dispute over the semiconductor industry and strong-armed Tokyo into accepting limits on car shipments to the United States.
In 2002, President George W Bush imposed tariffs on Chinese steel. The move allowed US steel producers to increase prices, raising costs for companies that buy steel and pressuring them to cut back elsewhere. But the tariffs are thought to have cost significant US job losses.
In 2009, the Obama administration imposed tariffs on Chinese tyres, charging that a surge in imports was hurting the US tyre industry. Beijing counterpunched. It imposed a tax of up to 105 per cent on US chicken feet — a throwaway item in the US that's considered a delicacy in China. The Peterson Institute for International Economics calculated that the tariffs probably saved 1200 American tyre jobs. But consumers paid over US$900,000 in higher tire prices for each job saved.