The first shots in the U.S.-China trade war were fired on July 6. Apparently, these won’t be the last based on the latest move by President Donald Trump.
After the United States slapped 25 percent tariffs on Chinese goods totaling $34 billion, the Chinese government reciprocated with a matching tariff on the same amount of goods imported from America.
Now the White House is threatening to ratchet up the pressure further. Trump directed U.S. Trade Representative Robert Lighthizer to identify $200 billion in Chinese goods for 10 percent tariffs to be implemented towards the end of September. The list of potential Chinese goods includes fruit and vegetables, handbags, refrigerators, rain jackets and baseball gloves.
So far, Chinese officials indicate that they will match these tariffs, but China only imports around $130 billion worth of U.S. goods. No one knows how exactly China might retaliate and for how long the escalating trade war will last.
Fortunately, Hawaii up to this point has not been directly affected. Our islands’ economy does not produce goods that are major exports to China, such as soybeans and meat.
But if the tit-for-tat continues and more goods and services are taxed and subjected to other restrictions, the possibility of Hawaii taking a direct economic hit rises.
As mentioned in my previous opinion piece (“Trade war could slow economic growth in Hawaii,” Star-Advertiser, Island Voices, April 29), the most likely effect will be rising prices. Already higher oil prices mean that everyday consumer goods, all shipped to us, are likely to see price increases. Broad tariffs on a range of Chinese goods ranging from food products to electronics will add to inflationary pressures.
Hawaii residents may see a dent in their pocketbooks and household budgets, but more ominous would be if China expands its retaliation to the booming U.S.-China services trade.
China could easily influence the flow of Chinese tourists visiting the United States by discouraging group tours or issuing further travel advisories. This would then directly affect one of Hawaii’s fastest growing tourism markets. Our visitor industry has already been trying to sustain its numbers as the volcanic activity on the Big Island has influenced tourism there.
Besides the possibility of Hawaii being in the direct line of fire from Chinese retaliation, there are knock-on effects that the so far limited trade war could create. Global supply chains are already being disrupted, influencing the investment and hiring decisions of many corporations.
This particular trade war actually began as an investigation into Chinese infringements on U.S. intellectual property rights and measures to force transfers of U.S. technology. However, Trump has been increasingly staking out a hardline position that seeks to lower U.S. imports and thus the trade deficit more broadly.
As long as his political base supports these moves and the American economy does not take a major hit, this strategy is likely to continue. One major factor to watch will be how effective Chinese (and other countries’) retaliation on U.S. tariffs will be. In part, these target the agricultural sectors in states that voted for Trump in 2016. If there is sufficient pain, the escalating trade war could backfire on Trump and affect the 2018 midterm elections.
As with all trade skirmishes, this is a game of chicken. If both sides dig in their heels and don’t back down, it could go on for too long causing major collateral damage, including industrial dislocations, rising consumer prices, financial volatility, and decreasing consumer confidence. A downturn in the U.S. and global economies can thus not be excluded.
The president needs to remember that the international political economy is not a reality show. Counterparts will remember the capriciousness and unilaterialism of Trump, and act accordingly when the United States requires their economic goodwill in the future.
Christopher A. McNally is a professor of political economy at Chaminade University.