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Trump’s Trade War With China Is Officially Underway

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How China Became Trump’s Trade Nemesis

China’s explosive rise was a shock to the global trading system. For decades, Western economies like the United States have struggled with the growth of this economic powerhouse.

“If you look at what’s happening with trade in China, it hasn’t been fair for many, many years.” When President Trump rails against China, he says things like, “Our country is being taken advantage of,” or, “We lost years ago by presidents and others allowing this to happen.” He’s probably referring to the past four decades, when China has grown faster than any major economy in history and gone from a poor, developing country to an economic powerhouse that is challenging America’s spot at the top of the international food chain. “Its emergence as a global power was so sharp and so extreme, faster than the world can handle, in some ways faster than China can handle.” The U.S. and other Western nations kick-started much of China’s rise by opening up trade. What they haven’t figured out is how to get this fundamentally different economic system to play by free market rules. A pivotal moment came in 2001 after 15 years of negotiations. China joined the World Trade Organization, which sets the rules for free and fair trade between member countries. “All of the countries that were in the club at the time put enormous demands on China for what they needed to do.” The Chinese committed to sharply lower tariffs and reduced some of the government’s role in how business gets done. But they argued then, as they still do now, that China is a developing country and so should be held to less stringent free trade standards. The hope was that these first steps would lead to even more sweeping changes. “Why did we assume that? The experience of communism was through the lens of the Soviet Union and its satellite states, which was ultimately not a success. And so the presumption was, China’s going to want to become like us, more market oriented.” “After China joined the W.T.O. in 2001, you saw this enormous surge of Chinese exports to everywhere in the world, and to the United States in particular.” “They were kind of an elephant hiding behind mice with respect to other countries in global trade negotiations at the time.” The U.S. and other countries complained that China was not opening its markets enough, and keeping the value of its currency artificially low to make Chinese exports more attractive. “China has been making great strides using tools that are really not acceptable under the global trade system.” China has continued to operate as a centrally planned economy. The government owns, influences or subsidizes major industries, giving them an artificial competitive edge. There are heavy restrictions on foreign investment, and foreign companies are pressured to share their technologies. “China has become more market oriented, but dating back to probably 2007, 2008, I think it was recognized that China wasn’t on the path to become more like us. And so then countries began to think about, well, what do we do instead?” “Some view the rise of Asia-Pacific with suspicion and fear. America doesn’t.” Enter the Trans-Pacific Partnership, initiated by Bush, signed by Obama. “When implemented, It won’t just boost trade and support jobs in our 12 countries. It will help set stronger rules for trade across the Asia-Pacific.” Put less politely, It was also supposed to be a bulwark to China’s growing economic power. “The idea was that China would want to join this great trading pact, and so they would have this incentive to reform their economy.” “This is the one that President Trump ripped up on his third day in office.” “The first one is withdrawal of the United States from the Trans-Pacific Partnership.” “I had seen the erosion of popular and congressional support for trade for many years. But I’d never seen anything like Donald Trump.” “Our founding fathers understood trade much better than our current politicians, believe me.” Trade is generally accepted by economists as win-win for countries on the whole. But Trump says that China is winning and the U.S. is losing. “He and people in his administration argue that past approaches to dealing with China haven’t worked. It’s not actually that profitable to negotiate with them. We need to focus on this much bigger trade measure, and then we can really hit them with a very aggressive, forceful action.” “He seems intent on generating a moment of crisis.” “We put a $50 billion tariff on, then we put a $100 billion tariff on. And you know at a certain point, they run out of bullets.” But dynamics have changed. Today, China sees its economy as strong enough to withstand almost anything the U.S. can throw at it.

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China’s explosive rise was a shock to the global trading system. For decades, Western economies like the United States have struggled with the growth of this economic powerhouse.CreditCredit...Johannes Eisele/Agence France-Presse — Getty Images

WASHINGTON — A trade war between the world’s two largest economies officially began on Friday morning as the Trump administration followed through with its threat to impose tariffs on $34 billion worth of Chinese products, a significant escalation of a fight that could hurt companies and consumers in both the United States and China.

The penalties, which went into effect at 12:01 a.m., prompted quick retaliation by Beijing, which said it immediately put its own similarly sized tariffs on American goods. Previously, the Chinese government had said it would tax pork, soybeans and automobiles, among other products

China’s Ministry of Commerce said in a statement that the United States “has launched the biggest trade war in economic history so far.”

The escalation of the trade war from threat to reality is expected to ripple through global supply chains, raise costs for businesses and consumers and roil global stock markets, which have been volatile in anticipation of a prolonged trade fight between the United States and almost everyone else.

On Thursday, President Trump showed no signs of backing down from his fight, saying aboard Air Force One that the first wave of tariffs on $34 billion in goods would quickly be followed by levies on another $16 billion of Chinese products. And Mr. Trump continued to threaten Beijing with escalating tariffs on as much as $450 billion worth of Chinese goods.

For now, it is unclear how — or whether — the trade war might conclude. Mr. Trump’s threats have been met with vows from China to retaliate, a stalemate that will require one side to blink first in order to avoid a protracted fight. With no official talks scheduled between the two countries, and disagreements within the Trump administration about how best to proceed, a quick resolution seems increasingly unlikely.

“At the moment, I don’t see how this ends,” said Edward Alden, a senior fellow at the Council on Foreign Relations. “This is very much in the president’s hands because he’s got advisers that seem divided, some substantively, some tactically. I just don’t think we’ve had any clear signs of the resolution he wants.”

[Read more about how Chinese shoppers reacted to the tariffs on American products.]

The Trump administration is waging trade wars on multiple fronts as it imposes tariffs on foreign steel, aluminum, solar panels and washing machines from countries like Canada, Mexico, the European Union and Japan. Yet the tariffs on China, the world’s largest manufacturing hub, affect a much larger share of products and a greater percentage of companies that rely on global supply chains, potentially hurting American companies even more than the Chinese firms the Trump administration is targeting.

Mr. Trump’s aggressive stance toward China is aimed at pressuring the country to curtail what the White House describes as a pattern of unfair trade practices and theft of American intellectual property. In addition to the tariffs, the White House is placing restrictions on investment and on visas for Chinese nationals. The administration says the trade barriers are being used as leverage to force Beijing to make changes, including opening its markets to American companies and ending its practice of requiring firms operating in China to hand over valuable technology.

But the trade measures come at a cost for American firms, which are facing potentially devastating disruptions to their businesses.

As of Friday morning, companies like Husco International, a Wisconsin-based manufacturing company that makes parts for companies like Ford, General Motors, Caterpillar and John Deere, now face a 25 percent increase on a variety of parts imported from China. Austin Ramirez, Husco International’s chief executive, said that increase would immediately put him and other American manufacturers at a disadvantage to competitors abroad.

“The people it helps most of all are my competitors in Germany and Japan, who also have large parts of their supply chain in Asia but don’t have these tariffs,” he said.

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The port of Savannah, Ga. China was quick to retaliate against tariffs imposed by Washington early on Friday.Credit...Stephen B. Morton/Associated Press

Mr. Ramirez said his company would not be able to absorb the additional costs, and would be forced to try to pass them on to suppliers or customers — if it could. He was also fearful of how China’s tit-for-tat retaliation would ultimately affect his business in that country.

“One of the big scary unknowns is we don’t know how China will react,” Mr. Ramirez said. “There are lots of things they could do to make life difficult for U.S. businesses operating in China that would be detrimental to us.”

China is expected to respond with its own tariffs on $34 billion worth of American goods, joining other countries that have retaliated against Mr. Trump’s trade measures and bringing the total value of affected American exports to about $75 billion by the end of the week. That is still a small fraction of the $1.55 trillion of goods the United States exported last year, but in some industries, the pain is becoming intense.

Brent Bible, a farmer who cultivates 5,000 acres of corn and soy in western Indiana, said the trade war was already damaging his farm and the broader agricultural economy. More than half of American soybeans that are exported go to China, giving the country influence over the price of the American crop. Trade worries have pushed down the price of soybeans roughly 15 percent in recent months, erasing his typical yearly profit margin of 8 percent to 10 percent.

Mr. Bible said farmers are now putting off purchases of tractors, grain storage facilities and other items to make ends meet.

“If we’re not spending money,” he said, “then other industries aren’t making any money off of us, either.”

The Trump administration drafted its initial tariff list to spare consumers, and many of the products that American families purchase from China, like flat-screen TVs and shoes, are not directly hit on Friday. But American companies that depend on Chinese products are expected to feel the pinch, given the tariffs focus heavily on the kind of intermediate inputs and capital equipment that businesses purchase and ultimately sell both in the United States and abroad.

China’s Commerce Ministry accused the United States of “typical trade bullying” and said in a statement that its tariffs “will impact innocent multinational companies and ordinary enterprises and consumers alike.”

“It will also harm the interests of U.S. businesses and its people,” it said.

Economists say Mr. Trump’s trade war will raise costs for American industry, potentially threatening the manufacturing jobs that the president has long said he wants to protect. And some of those higher costs will ultimately work their way through the supply chain to American consumers.

Razat Gaurav, the chief executive of LLamasoft, which advises companies on organizing their supply chains, said that many of his customers have been making alternate plans to restructure their operations, with some choosing to set up in countries like Vietnam or Mexico. Others are postponing large investments, like new factories, and are trying to avoid signing long-term contracts with suppliers — all changes that will eventually take a toll on the economy.

Many international companies route their supply chains through China, and American companies may end up feeling the effects of a trade war more keenly than their Chinese competitors. Research by Mary Lovely and Yang Liang of Syracuse University shows that in the field of computer and electronics products, for example, non-Chinese multinational corporations operating in China supply 87 percent of the products that will be affected by tariffs, while Chinese firms send only 13 percent.

A 2011 study by the Federal Reserve Bank of San Francisco showed that, for every dollar spent on an item labeled “Made in China,” 55 cents went for services produced in the United States.

“I think you’re going to see an effect on the longer-term view of the U.S. as a place to export,” Ms. Lovely said. “These tariffs are not hitting the mark, and they’re making it much harder for American firms to do business inside the United States, let alone export markets.”

A version of this article appears in print on  , Section B, Page 1 of the New York edition with the headline: U.S. and China Brace for Impact as Tariff Deadlines Expire. Order Reprints | Today’s Paper | Subscribe

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