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Bluster aside, US and China vulnerable to pain from tariffs

11 July 2018

"We have to be aware that we are only one tweet away from much broader tariffs becoming a reality", she said, adding that investors were trimming broad exposure to riskier assets. "You tax soybean exports at 25-percent, and you have serious damage to USA farmers".

Vice Premier Liu He has said privately that China is ready to set out for the first time what sectors it can open to European investment at the annual summit, expected to be attended by President Xi Jinping, China's Premier Li Keqiang and top EU officials.

The statement didn't provide details on exactly how or when China would respond.

China has sought the moral high ground during the increasingly bitter build up to the trade war by positioning itself as a champion of free trade but state media has now ramped up the rhetoric against the US President.

As many economists have noted, there are winners and losers in trade wars. "We won't do it and we have told them that".

Even a "victory" could be pyrrhic. Charlie Souhrada, a vice president of the North American Food Equipment Manufacturers, says the duties could raise the cost of a pressure cooker made by one of its members, Henny Penny. The products would, of course, be significantly more expensive and the range probably more limited.

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Investors fretted over the tariffs, and Asian and stocks edged down on Thursday as fears are growing over the consequences for global trade.

The two countries increasingly have engaged in verbal sparring in recent months, but Friday's pair of haymakers has dramatically escalated the trade dispute - and that has investors across the world anxious about what comes next.

Trump's decision to trigger a trade war isn't confined to the tit-for-tat exchange with China.

The paper holds that the tariffs will affect several USA sectors, including technology (which Trump says he's trying to protect) while hitting multinational supply chains and firms, as well as harming foreign investment in Chinese firms by allies such as Japan, South Korea, and European Union countries. They are the first stage in levies threatened by the Trump administration on a total of $450 billion worth of Chinese goods.

Economists have for months warned of the potential damage to the United States and global economies from aggressive trade policies that evolve into protectionism, which would raise prices and upend global supply chains.

The impacts and the uncertainties any further worsening of the situation would generate for global economic and financial activity could be devastating for economic activity and would also have a very significant, and very negative, impact on financial markets.

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The case could be made for manufacturing to shift to these other countries - and for them to take advantage of selling to the U.S. - but that shift would take time, and it's hard to see who could match China's scale.

In the meantime, Brazil, the world's top exporter, will likely pick up the slack, although a trade association warned on Thursday the South American country may need to import the oilseed from the United States this year to satisfy demand from local processors. Because frankly, Trump is right to criticize China.

This would inevitably push up prices for Tesla in China, making its vehicles less competitive than they already are, relative to others. Instead he has isolated the United States by the U.S. actions against the EU, Japan, Korea, Canada and Mexico.

"We feel the deficit is on the other side", Mr Juncker told the European Parliament yesterday.

Mexico is also studying how to reduce the economic strain of an escalating trade spat, an action that China has also adopted. "If they get an indication that this will continue to escalate, that will cause some problems". The signs aren't good.

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Bluster aside, US and China vulnerable to pain from tariffs