A Trade War Has Started: Will Trump Back Off?

Yesterday, the Chinese government implemented retaliatory tariffs up to 25% on imports of 128 American-made products, including pork, an important moneymaker, and seamless steel pipes. Chinese retaliation is said to be a threat to the Trump heartland and has rocked the whole US trade market since yesterday. 

Two weeks ago, a few hours after President Trump proposed tariffs on about $60 billion worth of Chinese-made products, China immediately announced its plan to impose tariffs on $3 billion worth of American-made products. A Commerce Ministry spokesman said in a statement: “[Chinese tariffs would] balance out the losses sustained by China through the United States’ increased tariffs on steel and aluminum imports…China urges the United States to resolve China’s concerns as soon as possible, resolve bilateral differences through dialogue and consultation, and avoid damage to the broader array of Chinese-US cooperation.” The tentative plan was divided into two stages: the first, a 15% duty on 120 products, including fruit and wine, and the second one with a 25% duty on eight other products, including pork. 

As it turns out, the tariffs, which began on Monday, covered a lucrative slice of America. It is believed that China has wisely chosen goods that have a political ulterior motive. For example, pork is originally from Nebraska and Midwest, an region which mostly voted for Trump. Last month, Chinese ambassador to Washington, Cui Tiankai, said, “We do not want a trade war with the United States or with anybody else, but we are not afraid of it. If somebody tries to impose a trade war upon us, we will fight. We will do whatever we can to defend the legitimate interests.” Senator Elizabeth Warren, Democrat of Massachusetts, said on Saturday that “America is waking up to the loss of its technological advantage [over China] through China’s restrictions on access to its internal markets.”

The retaliation has been holding sway over all markets in the United States since Monday. Stocks market on Wall Street are slumping sharply – the first quarterly decline since 2015, the dollar fell against a basket of currencies. New tariffs on steel and aluminum imports last month also give rise to decreasing supply chain and increasing price in steel commodity. 

The Trump administration will certainly be able to, and probably will, smooth down the situation for a short period of time. But in the long run, will Trump back off, or will there be another vicious cycle where no party benefits from this battle?