Trump could deal China a $78 billion trade blow

China’s President Xi Jinping and US President Donald Trump. Nicolas Asfouri / Getty Images
  • President Donald Trump is set to slap new tariffs on $US60 billion ($AU77.9 billion) worth of Chinese goods, multiple reports indicate, doubling the amount initially recommended by his advisers.
  • These tariffs could be announced by the end of the week.
  • While the direct economic effects may be limited, the move would signal rising trade tensions with China.

President Donald Trump is preparing to strike a blow on Chinese imports in a move that could heat up the simmering trade fight between China and the US.

According to multiple reports, Trump is set to announce tariffs on $US60 billion worth of Chinese goods – from electronics to toys – by the end of the week as part of an investigation into allegations of theft of US intellectual property by China.

The $US60 billion figure would be twice the size of recommendations from Trump’s advisers and represent 8% of the total annual value of Chinese goods exported to the US.

Louis Kuijs, the head of Asia economics at Oxford Economics, said that the direct economic impact on China and the US may be limited but that the move would risk increasing trade tensions between the two countries.

According to Kuijs, the new measures could shave 0.1 percentage points off both Chinese and US gross domestic product growth – but the bigger risk would be in the response.

“More measures may follow, and ‘tit-for-tat’ responses could lead to escalation,” Kuijs wrote in a note to clients Tuesday.

The tariffs would be the result of an investigation under Section 301 of the Trade Act of 1974 into whether China forces US companies to move intellectual property like patents to China to do business there.

Trump’s trade advisers, including the US trade representative, Robert Lighthizer, initially presented Trump a package of tariffs that would apply to $US30 billion worth of goods, but the president sent them back to the drawing board with a request for a bigger measure.

Given estimates that China’s IP theft costs the US hundreds of billions of dollars annually, most economists and strategists agree that the expected tariff action could have been much more severe.

Dirk Willer, an emerging-markets strategist at Citi, called it “relatively benign” but said it warranted a growing sense of unease in trade relations between the US and China.

“So far China has reacted very cautiously, preferring negotiations and aiming to offer the US some wins on the trade front,” Willer said. “But this could change if the Trump administration overreaches. Risks have clearly risen, even if an all-out trade war can probably still be avoided.”

Chris Krueger, a strategist at Cowen Washington Research Group, said that individual actions against China may not constitute major blows but that continued pressure by the Trump administration could risk more serious consequences.

“The anti-China push from this administration is a mosaic and is already well underway whether acknowledged or not,” he said in a note to clients, adding: “This 301 IP investigation is not the beginning of the end on the trade side – merely the beginning of the end.”