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President Donald Trump announced a new round of tariffs late on Monday, slapping a 10 percent tax on a $200 billion list of Chinese imports ranging from consumer goods to manufacturing materials. The new tariffs, effective September 24, will rise to 25 percent by January 1.
The bold move marks a new escalation of the ongoing trade tensions between Beijing and the U.S. that began this summer when Trump imposed a 25 percent tariff on steel and aluminum imported from China, the world’s second-largest economy, to punish that country for what Trump considers to be unfair trade practices.
“If China takes retaliatory action against our farmers or other industries, we will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports,” the president warned in a statement released on Monday evening.
Almost half of all Chinese imports into the U.S. are now subject to a tariff, for a total of $250 billion. China has already retaliated with tit-for-tat tariffs on billions of dollars of imported U.S.-made goods, noting earlier this month that trade officials there would not be swayed by Trump’s tactics.
“China will have to take necessary countermeasures if the U.S. side ignores the opposition of the overwhelming major of its enterprises and adopts new tariff measures,” Commerce Ministry spokesman Gao Feng said last week.
Treasury Secretary Steven Mnuchin had been working to coordinate talks this week between U.S. and Chinese trade officials, but this new round of tariffs threatens to derail that effort.
“As President, it is my duty to protect the interests of working men and women, farmers, ranchers, businesses, and our country itself,” Trump continued in his statement. “My Administration will not remain idle when those interests are under attack.”
Unlike previous rounds of tariffs, the new list affects a much broader array of components and consumer goods, increasing the potential that American shoppers will start to notice higher prices on store shelves.
“We remain concerned with the continued escalation of tariffs against China [and] the impact of the wide swath of consumer goods — everything from baby products to furniture to lighting was on that list,” said Jonathan Gold, vice president of supply chain and customs policy for the National Retail Federation. “Tariffs are not the right approach,” he said, pointing out that even if costs aren’t passed along to customers, absorbing those expenses will hamper companies’ ability to invest in equipment, technology or its workers.
These concerns about the broader impact of tariffs on corporate America, along with weakness in key tech stocks partially attributed to worry about higher production costs, weighed on the market Monday.
“I think if the tariffs are actually imposed, investors will pay some attention,” said Kate Warne, principal and investment strategist at Edward Jones. “It will tend to slow economic growth in the U.S. as well as raise prices… and lead to a more sustained pullback, at least short-term,” she predicted.
Trade experts say the upcoming midterm elections — already expected to be contentious — create an additional challenge for a frequently divided administration to navigate.
“What I’m seeing is a cloud hanging over the Mnuchin dialogue with Chinese leadership,” said Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics.
“My view has been that Trump does not want to fully engage in a trade war prior to the November election,” Hufbauer said, predicting that tariffs might be announced, but with a delayed time to implementation that would buy negotiators some time — possibly bringing the threat back after the midterms.
“The trade war is not going to help him in the election — it can only cause worse things,” Hufbauer said.
“I would be very surprised to see a resolution of the tensions in the foreseeable future,” said Michael O. Moore, an economics professor at George Washington University. “Unfortunately, I think both sides may need to feel a lot of pain before there is pressure to come from some sort of a deal… Many businesses are quite afraid about where this is all going.”
Although China has less clout to impose tariffs because of the significant trade deficit between the two nations, experts say the Chinese have other tools at their disposal to impose pain on American companies doing business in or with China, such as slowing down the movement of goods at customs, restricting American investment and disrupting the Chinese operations of U.S. companies with onerous new restrictions or inspections.
The prospect that increasingly belligerent trade talk — or tweets — could cast a chill over the markets more broadly is a major risk Trump takes with this kind of brinkmanship, experts said.
“The biggest economic risk is that the tension spirals out of control,” Hufbauer said. Another financial shock such as a crisis with Italian debt or big slowdown in emerging economies could act as a multiplier for the trade war effect, while a low-rate environment plus the massive and deficit-expanding tax cut package has left policymakers with few tools to address a downturn.
“The Fed and the Treasury are now quite constrained on their responses. And people will realize this, which means a smaller shock could have bigger impact,” Hufbauer warned.
“They’re playing chicken and so far, I don’t see anybody blinking,” Moore said.