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As China trade talks sputter, both sides ratchet up threats

The trade war with China shows no signs of cooling down.
Workers Process Additional Football Orders From Overseas Customers In Yiwu
Workers make footballs overtime to process additional soccer ball orders from overseas customers at the producing department of Aokai Sports Goods Co., Ltd. on July 5, 2018 in Yiwu, Zhejiang Province of China.VCG / Getty Images

Trade talks with China failed to break an impasse between the two countries, which each this week enacted a new round of tit-for-tat tariffs on $16 billion worth of goods and set the two nations up for a September showdown that could have a worldwide ripple effect on global trade.

The trade war now stands at $50 billion worth of goods on each side.

“I think we’re definitely looking at escalation,” said David Dollar, a senior fellow at the Brookings Institution.

U.S. trade negotiators had hoped to make headway with a Chinese trade delegation visiting the United States this week, but the two sides concluded their talks on Thursday without resolving any of the issues they had come to discuss, which included intellectual property rights and foreign investment.

“The positions really haven’t changed all that much,” said Peter Donisanu, global research analyst at the Wells Fargo Investment Institute. “It’s a problem from the sense that we’re not making progress in discussions,” he said, adding that it was a positive sign that the discussions continued.

But others say the situation will have to deteriorate further before it improves.

Jacob Kikegaard, a senior fellow at the Peterson Institute for International Economics, characterized this $16 billion round of tariffs as a skirmish in the run-up to a much larger battle. The U.S. has threatened to impose tariffs on an additional proposed $200 billion of Chinese imports, an action that could be implemented just after Labor Day. China’s trade policymakers have said they will respond in kind with tariffs on another $60 billion of American imports.

“People will start to feel the effects of these things and the likely Chinese retaliation, which will affect virtually all U.S. exports to China,” Kirkegaard said. Due to the large trade deficit between the two countries, China will run out of ammunition to enact retaliatory tariffs on the United States.

“The question is, do they do more than that? They could take other strategic moves that could, in the long run, be very damaging for the United States,” he said.

The United States this week began imposing 25 percent tariffs on nearly 300 imported Chinese items, including semiconductors and plastics. The Chinese Ministry of Commerce decried the move as “unreasonable” and levied tariffs in response targeting $16 billion of American-made cars, steel, medical equipment and fuel. The Chinese sanctions broaden the reach of earlier tariffs on soybeans, pork and other agricultural products into the red-state heartland, striking at Donald Trump’s base.

The Trump administration is betting that China’s economy will be hurt by its protectionist policies. Trade experts say the escalating tensions do appear to be having an impact, manifesting in slower growth and rising debt, but Beijing still has a number of fiscal tools to help it weather trade-related fallout, and many economists are doubtful that tariffs will succeed in extracting the kinds of concessions the Trump team is seeking.

Dollar said American goods-producing businesses could be caught in the crossfire of an escalating trade war. Manufacturers import a significant number of components, parts and materials, so 25% tariffs would increase their expenses significantly. At hearings scheduled to discuss the proposed $200 billion tariffs, about three-quarters of participants have spoken out against further trade sanctions. “Most firms are testifying that this is going to hurt their business if they can’t get their intermediate components from China,” Dollar said.

“This will be a little bit inflationary, but I would worry more about the jobs,” he said. “We’re hearing about a lot of firms, particularly small firms, that are going to have trouble adjusting. You will have some layoffs and some closures.”