The US is imposing additional tariffs on Chinese exports to the US as negotiators failed to reach agreement in Washington. This will increase tariffs from 10 to 25% on merchandise imports estimated at about $200 billion. There is a threat of another 25% tariff increase on such exports from China. China is also retaliating with its own measures that will increase tariffs on US exports to China estimated at 60 billion.
Even though the president states that such tariffs are paid by China, the reality is that US importers pay these levies. A recent study found that the burden of Trump’s tariffs – including taxes on steel, aluminum, solar panels, and Chinese imports – falls entirely on U.S. consumers and businesses who buy imported products.
The trade war has had adverse effects on bilateral trade. US exports to China were down 30 percent in the first quarter of 2019. Chinese exports to the US have gone down 9 percent. The trade tension added to Brexit as well as slow domestic demand in many countries including China may slow down global commerce as well growth in GDP. The impact of escalating tariffs on China is mixed. While it may adversely affect some vulnerable sectors, its state-controlled economy may be able to weather the storm. It can use fiscal and monetary policy to its advantage in order to counter the adverse effects of the trade war.