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FILE - This combination of two 2016 file photos shows, U.S. President-elect Donald Trump, left, talking with President Barack Obama at White House in Washington, U.S.A. on Nov. 10, and China's President Xi Jinping arriving at La Moneda presidential palace in Santiago, Chile, on Nov. 22. Chinese leaders are meeting to set economic goals for 2017 amid pressure from Trump and European governments over trade and market access. The Economic Work Conference, attended by Xi and other Communist Party leaders, which began Wednesday, Dec. 14, is a throwback to China’s era of central planning but still plays a key role in directing economic development. (AP Photo/Pablo Martinez Monsivais, Luis Hidalgo, Files)

President Trump and China might be headed toward a trade war, but economists say it's consumers who will pay


It took only hours for China's commerce ministry to propose a retaliation to President Donald Trump's new tariffs, leading to concerns of a possible trade war.

The stock market plunged in anticipation of the announcement on Thursday, leading to a drop of more than 700 points on the Dow Jones index. Trump's new plan slaps $60 billion dollars worth of tariffs on Chinese goods, while China's proposal would target 128 American products, totaling around $3 billion. According to former U.S. Ambassador to China Max Baucus, Trump's new plan has forced China's President Xi Jinping to respond in kind.

"The more he goes toward the full monty, all of it, China's going to respond," said Baucus. "There's no question, China has to respond, then we got a real problem."

Xi recently secured an effectively unlimited tenure as China's president, a feat no Chinese leader has accomplished since the days of former dictator Mao Zedong. He did it by building up China, expanding the middle class, and slowly building up his own power. Baucus noted that it is unlikely the Xi will want to jeopardize his new position by failing to retaliata against his country's main rival.

But economists say it's not Trump or Xi who will ultimately feel the cost of a potential trade war, its the average consumer.

"Tariffs would raise costs for manufacturers, reduce employment in manufacturing, and increase prices for consumers," said 15 former chains of the President's Council of Economic Advisers in a letter to Trump last year.

Trump's tariffs specifically target steel and aluminum imports. He argues that these resources are vital to national security interests, and that the U.S. must protect them economically. The problem is, tariffs often lead to price increases, which are ultimately passed on to the consumer.

The Trump administration has also argued that tariffs will help maintain U.S. jobs in the steel and aluminum industries. But whereas some jobs might be saved, many others could be jeopardized, according to Andrew Wilford, an associate policy analyst with the National Taxpayers Union Foundation.

"The American steel industry employs roughly 140,000 workers," wrote Wilford in an op-ed for The Hill on Thursday. "But industries that rely on steel to create their products—the ones who will suffer directly under the tariffs—employ 6.5 million workers. A recent study by the Trade Partnership found that the direct cost of tariffs on employment would be 18 jobs lost for every one created. On net, 470,000 Americans could lose their jobs."

That's a net loss of 330,000 jobs.

But the Trump administration argues that these tariffs are a long time coming for China's unfair trade practices. China has been accused of cornering the market with dumps of cheap steel on the market, leading to a drop in prices that some companies simply cannot compete with. Some industry leaders have said it's China that took the first shot in this pending trade war.

"You can't call yourself competitive if your competitiveness is based on cheating the international rules of trade. Trade without fairness is not trade, it's war," said Lourenco Goncalves, president and chief executive of Cliffs Natural Resources, a natural resources and mining company, in an interview with CNBC last wee.

The tariffs went into effect at 12:01 am on Friday. Trump's new policy gives him significant leeway on who is targeted. Argentina, Australia, the European Union, and South Korea recently joined Mexico and Canada as countries that are exempt until May 1. It's the administration's hope that they negotiate a deal instead of retaliating against the U.S.

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