WASHINGTON, DC (Circa) - China has shot back at the Trump administration's tariffs by announcing its own tariffs on certain U.S. goods. Like Trump's initial tariff announcement, China's response sent stocks plummeting and had many onlookers warning of a trade war.
The numbers involved, on face value, sound ominous. China's tariffs will target 128 U.S. products entering the country, totaling $3 billion of all U.S. exports to China. A majority of these items, ranging from fruits to steel piping will see a 15% tariff. The remaining eight, including various pork products and aluminum scrap, will face a 25% tariff. The Dow Jones Industrial Index responded dropping more than 450 points, a nearly 2 percent loss.
That said, total U.S. exports to China in 2016 totaled more than $115 billion, meaning the new tariffs apply to less than 3 percent those exports. The effect of Monday's announcement is likely to be "negligible" on a "global scale," wrote Notre Dame Finance professor Jason Reed in an op-ed for CNBC, but it could be the start of a larger problem.
"Depending on the response of the Trump administration, this could be the tip of the iceberg in a long, entrenched trade war," wrote Reed.
That response could come soon, as the White House is expected to announce a list of Chinese goods that could face tariffs some time this week. The White House announced it was preparing to tariff $50 billion worth of Chinese goods late last month.
The impending trade war puts both countries in an interesting predicament. The U.S. and China are rivals on the global stage, yet they are also major trade partners. In fact, China is the largest U.S. trade partner, with $578.2 billion exchanged in 2016. The problem for the Trump administration is that a huge majority of that number is imported by the U.S., creating a U.S. trade deficit with China of $340.7 billion. The White House believes the new tariffs will help even that out. The administration has also argued that protecting certain industries like steel and aluminum manufacturing is a national security imperative, and that it will help maintain American jobs. Indeed, 8,000 steel foundry workers have lost jobs since 2000, according to the Steel Founders' Society of America.
Washington has tried slapping tariffs on foreign goods for similar reasons before. The Republican Party, which in the modern era has been viewed as the vanguard of free trade, led the fight for trade protectionism for more than 20 years at the turn of the 20th century. The Smoot-Hawley tariff of 1930 effectively doubled U.S. tariffs at the the time, which was followed by a massive drop in global trade. Tariffs are often met with more tariffs, creating a cyclical effect. When the U.S. raised tariffs in 1930, the world responded by doing the same. Some economists believe this contributed to the Great Depression, according to the Cato Institute.
It remains unclear how far the Trump administration will go with China, but it has signaled its willingness to negotiate new trade deals with other foreign partners.