A key adviser to Donald Trump has admitted that the US as well as China will suffer as the trade war between the world’s two largest economies ratchets up.

By David Walker


Posted on May 13, 2019

On Friday 10 May, US President Donald Trump raised tariffs on some US$200 billion of Chinese products to rates of up to 25%. He also started a process to impose further levies on products that China exports to the US. China had reneged on previous trade commitments, he said in explanation.

The US–China trade war is now clearly the largest in world history.

Trump appears happy with the escalation, after tweeting on Sunday that “we are right where we want to be with China”. He has previously tweeted that when the US is “losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win”.

A key adviser, National Economic Council director Larry Kudlow, appeared at odds with this when he told the Fox News Sunday television program on Sunday 12 May that “both sides will pay” for the tariff escalation. “Both sides will suffer on this,” he emphasised.

Kudlow also told CNN that US officials expected the Chinese government to take their own new measures in response to Trump’s Friday tariff hike, possibly on Monday 13 May. But he maintained that the possible improvement in trade from the dispute made it worthwhile.

An op-ed published in the official People’s Daily newspaper on Monday was headlined “China will never bow to any extreme pressure” and urged “the elimination of all additional tariffs to resume normal bilateral trade”.

The main piece of optimistic news was Kudlow’s statement that there was a “strong possibility” Trump would meet Chinese President Xi Jinping on the trade situation during the June G20 summit in Japan. “The talks will continue,” he said.

Asian markets sold down on Monday 13 May, with the Shanghai Composite Index falling 29 points in early trade to 2910.04 at 11.30am CST.

Tariffs are generally viewed as creating losses for all parties involved in trade. For instance, US steel tariffs could cause Chinese steel producers to cut production and use less iron ore and coking coal from countries such as Australia and Indonesia. At the same time, prices for imported US vehicles could rise due to the higher cost of steel in the US.

Economists also fear that trade wars can escalate quickly in a tit-for-tat process as each country responds to the other. So far, the current trade battle appears to be following this script.

The US imposed tariffs on billions of dollars of Chinese products last year, and Beijing retaliated before the two countries agreed in December to talks. Trump’s latest action follows the breakdown of those talks.

An extended slowdown in the US and Chinese economies would be expected to hurt other nations as well. Together the two countries make up 35% of measured world economic production.

In another Sunday tweet, the US president floated a scheme to buy product not purchased from US farmers by China and “distribute the food to starving people in nations around the world!”