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The United States and China have officially kicked off a trade dispute that could either be a short-lived skirmish or a prolonged and painful trade war. The conflict began when the US imposed a 10% tariff on all Chinese goods, prompting China to retaliate with tariffs ranging from 10% to 15% on certain US products, including coal, liquefied natural gas, crude oil, agricultural machinery, and large-displacement cars.
China's countermeasures, set to take effect on Monday, also include adding two American companies, Illumina and PVH Group, owner of Calvin Klein and Tommy Hilfiger, to its unreliable entities list. This move severely limits the companies' ability to operate in China, citing violations of normal market trading principles.
The situation remains uncertain, with some experts speculating that the two nations may agree to postpone further action to engage in dialogue. Clark Packard, a research fellow at the Cato Institute's Herbert A. Stiefel Center for Trade Policy Studies, warned that if a deal isn't reached, the conflict could escalate rapidly, per CNN. "If a similar deal isn't reached, then I think it has the potential to be fairly intense," Packard said.
The tariffs imposed by the US could lead to higher prices for American consumers, affecting a wide range of goods, including consumer electronics, toys, and apparel. Additionally, the increased costs of importing raw materials, such as rubber, plastic, and chemicals, could negatively impact American businesses.
The conflict may also have far-reaching consequences, including job losses in both China and the US. Morgan Stanley economists predict that the US will impose additional tariffs on China later this year, which could lead to further retaliation from China.
A potentially more devastating scenario is a three-way trade war involving the US, China, and other nations, such as Mexico and Canada. Citibank economists warn that this could lead to significant economic contraction in the US, with the economy predicted to shrink by 0.8% this year and -1.1% next year.
China's economy would be impacted less this year and next as compared to the US, despite heavy tariffs, on the other hand, the economies of Mexico and Canada will be hit majorly as compared to the United States.