Moneybox

China Slaps New Tariffs on the U.S., and Trump’s Plan to Deal With It Is Not Great

Soybeans are unloaded into a truck.
Imports of soybeans from the U.S., once China’s biggest supplier, have dropped massively since a trade war between the U.S. and China began in 2018.
STR/Getty Images

Over the weekend, Larry Kudlow, the White House’s top economic adviser, admitted that the escalating trade war between the United States and China is going to cause at least a bit of pain for everybody involved. “Both sides will suffer on this,” he told Fox News Sunday, before going on to defend the whole exercise.

Beijing has quickly proved him right. On Monday, the Chinese imposed additional duties on $60 billion worth of U.S. exports, ranging from 5 percent to 25 percent, which will take effect on June 1. The move is retaliation for Donald Trump’s decision last week to increase tariffs on $200 billion worth of goods from China to 25 percent after the countries failed to agree on a trade deal.

China’s new tariffs will cover thousands of American products. Unfortunately, the list only appears to be available in Mandarin, but according to the Guardian, it includes a whole array of food, alcoholic beverages, chemicals, and some manufactured goods. During the last round of this tit for tat, Beijing targeted economically and politically important U.S. agricultural exports for tariffs, particularly soybeans, which had become a massive cash crop in the U.S. thanks to the Chinese market. Right now, the administration mostly still seems to be focused on shielding farmers from the blowback. It previously vowed to spend $12 billion on a bailout for farmers hurt by tariffs. Last week, Trump seemed to hatch a new scheme, tweeting that the government might buy $15 billion worth of soybeans and such that it would then send to “poor & starving countries” as humanitarian aid.

There are at least two obvious problems with this strategy. First, it does little for the many American exporters, such as wineries and chemical producers, that are being targeted for tariffs and whose products obviously will not be shipped in care packages to “starving” countries. Second, while the move may cushion the immediate blow to commodity farmers, it doesn’t really address their long-term problem, which is that this trade war could end up permanently costing them market share in China, as buyers there shift to other suppliers.

All of this underscores a bigger point: While the White House is probably right that Trump’s trade battles are unlikely to do much damage to the broader economy—“This is a risk we should and can take without damaging our economy in any appreciable way,” Kudlow said Sunday—they definitely have the potential to undermine particular industries, either by killing their markets or making it more expensive to import supplies they use in manufacturing.

This seems to be somewhat lost on Trump himself, who has always had a bit of difficulty grokking the concept of supply chain management.

Back in the real world, it is not always that easy to find a new widget factory to buy from when your Chinese supplier suddenly becomes 25 percent more expensive thanks to a tariff. It is also not always that easy to find a new buyer for your soybeans, when your old customers in the People’s Republic have started buying them from Brazil instead.