These are dangerous days indeed for U.S.-China trade relations. Under the direction of President Donald Trump, the U.S. is upending trade conventions that have dominated the past several decades. As US Trade Representative Jamieson Greer told Congress on Tuesday, the problem with progress on trade discussions is that there is no deadline. In a much-anticipated announcement, the White House has confirmed that it will be applying an extra 50% tariff on the bulk of Chinese imports. This is on top of previously announced duties, which now amount to 54%. Not surprisingly, businesses and economists have expressed mounting alarm over the sudden escalation. In response to these measures, they release a joint warning that these draconian measures would be calamitous to the US economy.
All this really points to a looming confrontation with China. Indeed, for the second consecutive year, China was the US’s third-largest supplier of imports last year. At the time of writing, the US federal government has plans to impose tariffs on Chinese goods as high as 104%. Aggressive tariffs have caused swift consequences in the stock market. These fears have helped drive the S&P 500 down to its lowest trading levels in more than a year. Since the imposition of these tariffs became known last Wednesday, that index has had nearly 12% of its value erased.
The negative effects of the trade war’s unpredictable nature run deeper. They’ve rung alarm bells over potential job losses and reductions in household purchasing power. The Budget Lab at Yale sounded the alarm on tariffs announced so far this year, predicting 600,000 jobs lost. Their numbers are even worse, including an estimate that the typical American household will lose $3,800 in purchasing power. The overall effective tariff rate in the US is set to reach its highest level in over a century, further complicating the economic landscape.
The current volatility in the market is an accurate depiction of the increasing apprehension felt by investors and corporations alike. Erin Williamson, a business analyst, urged companies to adopt a wait-and-see attitude while the stormy waters are still roiling.
“One of the top ways that you can confirm that you’re not putting your business at risk is really holding off until maybe the dust settles.” – Erin Williamson
As economist Ernie Tedeschi noted, the current market turmoil is caused almost entirely by the uncertainty. It’s not just that, because of the direct economic impact of tariffs alone.
“A lot of the market turmoil we’ve seen is not about the substance of the economic damage of tariffs on their own. A lot of it is about the uncertainty.” – Ernie Tedeschi
The Trump administration’s approach has drawn criticism from various quarters, including statements from Chinese officials asserting that “intimidation, threat, and blackmail are not the right way to engage with China.” This is their alarm bell. If the United States persists in adversely impacting Chinese core interests and raising tensions, China will react with determination.
In a speech on the future of work last week, President Trump said he was confident that the American people could respond to the rapid changes we face.
“It is a moment of drastic, overdue change, but I am confident the American people will rise to the occasion as they have done before.” – Donald Trump
Analysts remain skeptical about this outlook. As Amy Magnus highlighted, there is deep confusion among the business community about what is coming next in trade policy.
“What I’m really seeing is trepidation, uncertainty, a lot of questions, a lot of people wanting us to predict what will happen next.” – Amy Magnus
As companies continue to navigate these issues, many business owners have been understandably dismayed by the current state of affairs. Jay Foreman, co-founder of OpenGov, commented that what’s happening now is tragic.
“You would laugh if you weren’t crying.” – Jay Foreman