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Bluster aside, US and China vulnerable to pain from tariffs
July 5, 2018
WASHINGTON (AP) — The U.S. and Chinese governments have been flashing a lot of bravado just before firing the first shots in a conflict that risks erupting into a mutually damaging trade war.
“China will not bow in the face of threats and blackmail, nor will it be shaken in its resolve to defend global free trade,” a spokesman for Beijing’s Commerce Ministry declared Thursday, one day before the two sides were to subject billions of dollars of each other’s goods to punishing tariffs.
President Donald Trump, who ran for the White House on a vow to force China and other nations to reform their policies, has insisted that a trade war would be easy to win.
Yet among the people and business in both countries that are suddenly under threat from higher costs, closed-off markets and deep uncertainties, there’s far less confidence. A trade war between the world’s two biggest economies will leave casualties — from makers of musical instruments to farmers in America’s Midwest to a manufacturer of soldering irons south of Shanghai.
In some areas and industries, pain is already being felt.
“There’s going to be an awful lot of battles lost on the way,” said Tim Velde, a fourth-generation farmer in western Minnesota’s Yellow Medicine County who is bracing for China’s tariffs on American soybeans. “I don’t see anybody winning.”
Tong Feibing, general manager of China’s Ningbo Top East Technology Co., which makes soldering irons and had been exporting 30 percent of its output to the United States — before sales plunged in advance of tariffs — is worried.
“There is a chance the company will lose money and might bankrupt,” Tong warned. “I will do whatever I can, including layoffs.”
At 12:01 a.m. Eastern time Friday, the United States was set to slap tariffs on $34 billion in Chinese products. And Beijing was ready to respond in kind. From there, the hostilities could escalate quickly and drastically. Trump has threatened to slap tariffs on up to $450 billion in Chinese imports — nearly 90 percent of all goods China sent the U.S. last year — if Beijing continues to retaliate and doesn’t yield to Trump’s demands.
The Trump administration wants China to drop what it calls its predatory drive to supplant American technological dominance, through tactics that include forcing U.S. companies to reveal trade secrets in return for access to the Chinese market and committing cyber-theft.
Trade wars can draw blood in several ways. Exporters face taxes on what they ship across the Pacific. This makes their products more expensive and less competitive.
And importers must pay more for the foreign machinery and components they buy — and then decide whether they can afford to pass along those higher costs to their customers.
In choosing the Chinese goods to tax, the Trump administration tried to limit the impact on American consumers. It aimed instead mainly at industrial products. Yet those tariffs will hurt American companies that rely on Chinese-made components and machinery.
Most Americans wouldn’t recognize the vast majority of the Chinese imports that the Trump administration is targeting. But they would recognize the companies that use them.
PetSmart, for example, says the administration’s tariffs will inflate the cost of imported water filters for home aquariums. Jacuzzi has said its hot tubs and bathtubs will be affected by higher U.S. tariffs on pumps. Newell Brands, which owns Rubbermaid, says Americans may face higher costs for its imported FoodSaver vacuum sealer products, which are used to store and preserve food.
Moog Music Inc. in Asheville, North Carolina, known for synthesizers used by the likes of David Bowie and Michael Jackson, warns that the tariffs on imported Chinese circuit boards and other parts will “immediately and drastically” increase the cost of its instruments and might require layoffs. In a worst-case scenario, Moog said, it might have to move some manufacturing overseas. It’s urging employees to call their congressional representatives to protest the tariffs.
In southern China, a company that makes LED-lighting is scrambling to find alternatives to the U.S. market, which used to buy 30 percent of its output. The company’s salespeople have looked instead for buyers from Europe, Southeast Asia and the Middle East, according to company manager Yang Zhuangnin. He said the company, based near Hong Kong, will try to make improvements to draw American buyers despite higher prices.
“Another method we have been thinking about is to send almost-finished products to another country, and then do the simple production there and re-export to the United States,” Yang said. “Clients may have other ways and suggestions. We’ll see.”
In selecting American products for retaliatory tariffs, Beijing chose many that would inflict political as well as economic pain. Its target list is heavy on American farm exports — a shot at Trump supporters in the nation’s heartland. Farmers are also well-represented by lobbyists and powerful members of Congress who might be able to influence the Trump administration.
Don Bloss, who grows corn, soybeans, sorghum and what on 3,5000 acres of rolling land in southeastern Nebraska, says the tariff threat has already driven down crop prices.
“Right now,” Bloss said, “it’s a matter of how much money you’re going to lose, not how much money you’re going to make.”
Automakers could endure pain, too, once China applies higher tariffs to vehicles from the United States. Beijing already imposes a 25 percent tariff on imported autos. Retaliatory tariffs would likely double that tax, said Kristen Dziczek of the Center for Automotive Research, an industry think tank. That could mean trouble for BMW, Mercedes, Tesla and Ford, the largest exporters of vehicles from the U.S. to China.
All would likely raise prices, which would slow sales and could force production cuts. A result could be layoffs, Dziczek said, especially at a BMW SUV factory near Spartanburg, South Carolina, and a Mercedes SUV plant near Tuscaloosa, Alabama. In addition, the SUVs those plants make include parts from overseas that would be subject to increased U.S. tariffs, further raising prices, she said.
Trump’s trade team insists that the United States wields a decisive edge over China in a trade war: China sells much more to America ($524 billion last year) than Americans sell China ($188 billion) and so is more vulnerable to tariffs.
But trade analysts are skeptical that Beijing will blink first. The question, said Philip Levy of the Chicago Council on Global Affairs, is which side has more political tolerance for pain.
“From China’s perspective, this is an unacceptable foreign assault that they will resist at all costs,” said Levy, who was a trade adviser in President George W. Bush’s White House. “From the perspective of U.S. businesses and farms, this is a self-inflicted wound. That will lead to mounting pressure on members of Congress, which does retain the power to do something about it.”
Associated Press Writers Steve Karnowski in Minneapolis; David Pitt in Des Moines, Iowa; Tom Krisher in Detroit; Christopher Bodeen and Joe McDonald and AP researcher Fu Ting in Beijing contributed to this report.