Trump’s Trade War with China is about to Hit Home
The special Sino Saturday edition of CEO Daily.
President Trump is calling Xi Jinping his friend again this week after briefly denouncing the Chinese leader as an “enemy.” But Trump isn’t backing away from his promise to keep piling tariffs on imports from Xi’s country until negotiators from the U.S. and China reach a trade deal.
The next round of duties kicks in tomorrow, when the Treasury will start collecting 15% tariffs on $112 billion of Chinese imports. Asked about the tariffs as his helicopter departed the White House for Camp David Friday, Trump answered with gusto: “They’re on!”
The new levies will test Trump’s claim that trade wars are “good and easy to win.” The president and his economic advisers, notably China hardliner Peter Navarro, have long insisted tariffs are paid by Chinese exporters and add billions in revenue to the U.S. Treasury. That assertion has been widely ridiculed by economists, who note that while China may bear some of the pain by lowering producer prices or devaluing the yuan, tariffs are collected from U.S. importers—who must then decide whether to eat the added expense themselves or pass it on to consumers.
Until now the “who pays?” debate has been mostly academic. As the Associated Press points out, U.S. consumers have been shielded from the impact of Trump’s trade war with China because the administration “left most everyday household items off its tariff list…and instead targeted industrial goods.”
No more. Tariffs that take effect tomorrow will include 70% of the consumer goods Americans buy from China, including smart watches, TVs, shoes, diapers, sporting goods, meat and dairy products. Trump has vowed to impose higher tariffs on an additional $160 billion worth of Chinese products on Dec. 15. By that point virtually all U.S. consumer goods imported from China will be taxed, according to calculations by the Peterson Institute for International Economics.
This week a chorus of U.S. executives condemned Trump’s tariffs, warning that higher China duties will hurt American firms and force them to hike prices. Columbia Sportswear CEO Tim Boyle told CNBC the new tariffs would oblige his company to raise prices and abandon some product categories. “I don’t see the issues that the president talks about,” Boyle said. “I think it’s easy to point fingers at China.” Jay Forman, CEO of toy manufacturer Basic Fun, groused China tariffs were making it impossible for small businesses like his to plan.
Yale University management expert Jeffery Sonnenfeld told CNBC Trump’s China strategy is making corporate America “an increasingly unhappy group.” Over 160 industry groups signed a letter opposing Trump’s tariffs.
Trump, predictably, lashed back at business critics. “Badly run and weak companies are smartly blaming these small Tariffs instead of themselves for bad management,” he tweeted Friday. “Excuses!”
The bigger worry for Trump is that his tariffs risk losing the support of farmers as well as business leaders. New York Times columnist Paul Krugman, in an epic rant, concludes farmers will stick with Trump even though his China policies are ruining them. But a series of recent polls and surveys of farmers suggests they aren’t as blindly loyal as Krugman assumes.
The wild card in all of this is Hong Kong. Trump has suggested the U.S. won’t sign a trade deal with China unless Xi deals “humanely” with pro-democracy demonstrators in this city. But as I write, tens of thousands of protestors here have taken to the streets again in defiance of warnings from the Hong Kong government and Beijing.
In Hong Kong, as in his dealings with Trump on trade, Xi shows no signs of backing down.
Clay Chandler
– Clay.Chandler@Fortune.com
– @claychandler