Trade Conflict with China Heats Up

August 15, 2019

Trade disputes between the United States and China escalated sharply, roiling financial markets and raising questions about whether the decade-long U.S. economic expansion could survive the rounds of retaliation and counter-retaliation. President Trump surprised most trade policy observers by announcing the imposition of 10 percent tariffs on $300 billion of Chinese goods, effective September 1. The $300 billion in imports to be taxed in September include a heavy concentration of consumer goods in addition to agricultural products, alcohol, and steel and aluminum. The United States trade representative also announced that tariffs on certain consumer products such as cell phones, laptops, video game consoles, certain toys, and certain items of footwear and clothing would be delayed until December 15.

China’s foreign ministry said counter-retaliation would follow, and Chinese officials confirmed they would halt all purchases of agricultural products from the United States and might impose tariffs on farm goods already purchased. In addition, China’s central bank let its currency fall below seven to the dollar, a symbolically important level. The U.S. officially labeled China a currency manipulator. The flight to safe-haven government bonds sent long-term interest rates down, and in the U.S., the yield curve inverted further. Several money-center banks said the odds of a recession have increased because of the trade turmoil.