Trump’s trade war with China will have huge unintended consequences

The Trump administration doesn't seem to know how the 21st century global supply chains work.

Donald Trump speaks during a campaign rally at Four Seasons Arena on July 5, 2018 in Great Falls, Montana. CREDIT: Justin Sullivan/Getty Images.
Donald Trump speaks during a campaign rally at Four Seasons Arena on July 5, 2018 in Great Falls, Montana. CREDIT: Justin Sullivan/Getty Images.

President Donald Trump’s trade war with China kicked off on Friday, when the United States started applying 25 percent in tariffs on $35 billion worth of Chinese imports and China fired back with taxes on the same amount of U.S. goods.

On Thursday, Trump said that he is willing to slap tariffs on up to $550 billion, which actually exceeds the current value of Chinese imports to the United States by $46 billion.

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Even though the tariffs just kicked in, they were approved in back in March and have already managed to make a negative impact.

This trade war will hit American agricultural exports such as pork and soybean hard, but if President Trump ups the ante, products like televisions and other household goods could also be hit, meaning consumers will face higher prices, Matthew Shay, president of the National Retail Federation, told the Associated Press.

That could include “a wide range of products as diverse as tool sets, batteries, remote controls, flash drives and thermostats,” he said, adding, “a strategy based on unilateral tariffs is the wrong approach, and it has to stop.”

But given the complicated nature of global supply chains, President Trump’s tariffs are also harming other businesses far and wide. China’s Ministry of Commerce called this the start of the “biggest trade war in economic history.”

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In a paper published in May, the Peterson Institute for International Economics researchers described Trump’s tariffs as an “own goal” because they fail to target goods made strictly within China, using Chinese materials and labor, because that’s really not how the world works anymore.

The paper holds that the tariffs will affect several U.S. sectors, including technology (which Trump says he’s trying to protect) while hitting multinational supply chains and firms, as well as harming foreign investment in Chinese firms by allies such as Japan, South Korea, and European Union countries.

The president’s tariffs, the PIIE’s researchers conclude, are “a prime example of 20th century tools aimed at the knowledge-embodying trade flows of the 21st century.”

What’s worse is that the Trump administration has paved no way out of this situation, said Matthew Gold, former deputy assistant U.S. trade representative for North America. He told CNBC that there may be no way to escape a trade war with China.

“President Trump has really left no exit ramps here,” Gold told CNBC, adding, “We’re in a downward spiral.”

As the tariffs kicked in on Friday, the president chose to focus on the employment report:

The report, which shows that unemployment has dropped, also included some numbers that might not be worth the all-caps tweet, including slowed hiring in small businesses and a lack of qualified applicants in some fields, owing, possibly, to wage stagnation.