President Donald Trump said Thursday that he will effectively end free trade between the U.S. and China from next month, announcing new taxes on the remaining $300 billion worth of Chinese goods from September 1.
The latest move in the U.S.-China trade war will have the biggest impact on U.S. consumers yet, with products like toys, clothing, shoes, and consumer electronics like iPhones now facing penalties.
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Trump, announcing the measures via his favored medium, Twitter, said he had made the decision because the two sides had not been able to make satisfactory progress on a deal during talks in Shanghai this week.
He added that China and his “friend President Xi” had not fulfilled promises, including a pledge to purchase U.S. agricultural products in large quantities and a commitment to stop sales of the synthetic opioid fentanyl to the U.S.
Trump says his friendship with Xi remains strong, however, and that he is open to ongoing negotiations.
“We look forward to continuing our positive dialogue with China on a comprehensive Trade Deal, and feel that the future between our two countries will be a very bright one,” Trump tweeted.
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How will the tariffs work?
The tariffs will work in the same way as the 25 percent taxes already imposed on $250 billion worth of Chinese goods, but this time around, the taxes will hit U.S. consumers more directly. Trump later said the new taxes could also rise to 25 percent if there is no trade deal, but didn’t say when the increase would take effect.
The U.S. Chamber of Commerce, which represents more than three million U.S. companies, said the new tariffs “will only inflict greater pain on American businesses, farmers, workers and consumers, and undermine an otherwise strong US economy.”
While Trump insists that tariffs on Chinese goods are a boon for the U.S. economy, experts point out that the higher prices are almost always ultimately shouldered by U.S. consumers rather than the Chinese manufacturers.
“These new tariffs, if implemented, will hit many thousands of American businesses who rely upon Chinese-made inputs and, ultimately, American consumers,” Nelson Dong, a member of the Board of Directors of the National Committee on US-China Relations, told VICE News in an emailed statement. “Tariffs are taxes, tariffs are almost always paid by importers, and so tariffs usually increase the costs of goods.”
What will China do?
Chinese Foreign Minister Wang Yi told reporters Friday that the move is not a “constructive” or “correct” way to resolve the ongoing trade tensions between Beijing and Washington.
To date, China has responded to each of Trump’s tariffs by taxing U.S. goods, but because it’s already taxed all incoming U.S. goods, Beijing now has to look elsewhere for ways of punishing U.S. individuals and companies.
READ: U.S. escalates trade war with steep new tariffs on Chinese goods
We should expect an intensification of non-tariff measures that penalize American firms and executives, says China-watcher and author of the Sinocism newsletter Bill Bishop.
“Such measures include but are not limited to: an accelerated rollout of China’s unreliable entities list; licensing problems; increased inspections; canceled deals, especially with [state-owned enterprises]; enforcement actions; media attacks; nationalist outrage, and harassment or worse of employees of US firms,” Bishop said in his Thursday newsletter.
What happens next?
Trump is likely hoping that using the U.S. trade surplus to strong-arm China will bring Beijing to its knees. But experts believe the move could have the opposite effect, and drive a wedge further between the two sides.
“If Trump is hoping the Chinese will cave in the face of this September 1 threat for new tariffs I expect he will be disappointed,” Bishop wrote. “This goes against two of China’s core demands — sincerity and removal of existing tariffs — and is humiliating once again to its top negotiators.”
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At the talks in Shanghai this week, negotiations involving Treasury Secretary Steve Mnuchin and Trade Representative Robert Lighthizer ended early, with little progress made. Talks are scheduled to take place again next month, but there is little hope on either side that they’ll result in meaningful movement.
“Pushing the other side into a corner where any meaningful concession then appears to be ‘weakness’ or ‘vulnerability’ because of such an overt threat posture typically reduces the likelihood of a positive outcome,” Dong said.
Cover: President Donald Trump talks to reporters before departing for a campaign rally in Cincinnati, on the South Lawn of the White House, Thursday, Aug. 1, 2019, in Washington. Trump’s tweets struck as quickly as a scythe on Thursday and cut the legs out from not just a budding stock rally but several different markets. (AP Photo/Evan Vucci)
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