The Trade War Begins: U.S. and China Tariffs Take Effect

July 6, 2018

By Alisha Haridasani

It’s happening.

A fierce trade war between two of the world’s largest economies set off early Friday, after the U.S. officially implemented tariffs on $34 billion worth of Chinese goods and Beijing immediately responded in kind.

President Donald Trump warned on Thursday, before the tariffs went into effect, that the U.S. could end up taxing every single Chinese item imported if Beijing retaliates. That would be worth $500 billion.

China, however, didn’t blink and blamed the U.S. for launching “the biggest trade war in economic history so far.”

While U.S. markets didn’t seem to react to the news at the open, the impact of the economic tit-for-tat will likely sweep across corporate supply chains in both America and China, weighing down bottom lines and consumer wallets.

“It’s becoming conventional wisdom at this point that the benefits of corporate tax cuts is being offset by the uncertainty around the trade war,” said Axios reporter Erica Pandey.

“We can see impacts as small as a small price hike for consumers, or the businesses could choose to eat the costs and we could see losses of jobs.”

The Trump administration’s tariffs specifically target high-tech products in an attempt to punish China for intellectual property theft. That could have knock-on effect on millennial consumers, said Pandey.

“Some of the goods on the chopping block include e-bikes, e-scooters, e-cigs, and everything ‘e,’ and smart home devices,” said Pandey. “So it’s the tech devices that are overwhelmingly used by young people that are not often discussed but that could go up as much as $100 per unit with these new tariffs.”

China’s tariffs target America’s agricultural industry, hitting soybeans, poultry, corn, wheat, rice, and beef, with the intention of crippling farmers’ support for Trump.

One slice of the agricultural industry is already feeling the pinch: cheese producers. American cheese makers in recent years have relied heavily on exports to Mexico and China, both countries that have now levied retaliatory taxes on the dairy product, said Wall Street Journal reporter Heather Haddon.

Before the tariffs kicked in, dairy exports had hit a record high in April, doubling from nearly a decade ago, according to Haddon's reporting.

With the new trade barriers in place, cheese makers are struggling to find a market for their products. "They can't just take this cheese that was made for Mexico and then just and sell it to folks in North Carolina or wherever," said Haddon.

"At the same time we've got record high cheese in storage right now. There's quite a lot of supply in the U.S. so it's also not like the supply can just go domestically."

Adding to the cheese makers problems are the perishable nature of their product, which would only compound their losses.

"Some of them are starting to contemplate shifting to cheeses that can be held for longer, that can be aged, that benefit from ageing, if this tariff situation continues."