Experts say additional proposed U.S. tariffs on Chinese imports, if followed by "tit for tat" retaliation by China, would likely lower economic growth in both countries.
President Donald Trump on Thursday night asked the U.S. trade representative to consider slapping tariffs on another $100 billion worth of products from China on top of the $50 billion in duties proposed earlier this week. The surprise move came after Beijing announced plans to tax $50 billion in American products, including soybeans and small aircraft.
"President Trump's threat of an additional $100 billion in tariffs in response to Chinese [intellectural property] theft is a clear extension of his brinksmanship negotiating style," Height Capital Markets analyst Clayton Allen said in a a note. "We think this move is designed to reclaim the leverage Trump lost to China's threat of $50 billion in retaliatory tariffs on key U.S. exports."
Mr. Trump on Friday reposted a tweet he'd published earlier denying that the U.S. is in a trade war with China, asserting that such a conflict "was lost many year ago by the foolish, or incompetent, people who represented the U.S."
In another tweet Friday, Mr. Trump said China gets "tremendous perks and advantages" because of global trade rules and said the World Trade Organization is unfair to the U.S.
Responding to Mr. Trump's threat to up the ante on tariffs, Chinese economic officials said they are prepared to fire back.
"China will dedicate itself to the end and at any cost and will definitely fight back firmly" if the U.S. persists in its "protectionism," the Commerce Ministry said in a statement.
Trump administration officials have said the U.S. may not ultimately impose tariffs on China, with White House chief economic adviser Larry Kudlow saying Wednesday that the president wants to solve the trade dispute with the "least amount of pain."
If no solutions are found, tariffs could crimp economic growth in both the U.S. and China. U.S. gross domestic product could fall by a total of 0.3 percent this year and next, projects Gregory Daco of Oxford Economics. That's if all theon China are imposed and Beijing fires back. Chinese economic growth could see a similar dip, while a broader trade war would result in a "significant" slowdown in both countries, he said in a note to clients.
Combined with China's already proposed sanctions, a move by Beijing to match Mr. Trump's latest threat of additional tariffs would exceed the $130 billion in all U.S. exports to China last year. That could invite China to retaliate in other ways, such as trimming purchases of U.S. Treasuries, Daco suggested.
Fears of a U.S.-China conflict over trade have roiled markets in recent weeks, causing sharp swings in stock prices as investors weigh the risks. That is likely to continue, according to Moody's Investors Service.
"The rising uncertainty and political risk accompanying these tit-for-tat measures will likely have economic and financial impact beyond that which is transmitted through direct trade channels," analysts with the credit bureau wrote in a report following the last U.S. tariffs threat. "A further escalation in trade tensions will weigh on investor sentiment and likely lead to more financial market volatility in the coming months."
Leading U.S. financial markets fell in early trade on Friday.