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Trump vs. China: Who Will Blink First?

After China released a statement threatening to raise tariffs on a list of more than 100 U.S. goods in retaliation for President Trump’s original tariffs on Chinese imports, President Trump responded on Thursday with a statement of his own: If this was the way Beijing wanted to play, the U.S. would make sure their economy felt the pain.

“Rather than remedy its misconduct, China has chosen to harm our farmers and manufacturers,” Trump said on Thursday. He accused China of “unfair retaliation” and directed U.S. trade representatives to look at the possibility of adding another $100 billion in Chinese goods to the tariffs list. If they can find such a list and determine that the taxes are appropriate, Trump said they will report which “products upon which to impose such tariffs.”

Many Republicans have parted ways with the president as this potential trade war escalates. Sen. Ben Sasse, who has never been the biggest Trump supporter in Congress, said that the president was “threatening to light American agriculture on fire.”

“Hopefully the president is just blowing off steam again, but if he’s even half-serious, this is nuts,” said Sasse. “Let’s absolutely take on Chinese bad behavior, but with a plan that punishes them instead of us. This is the dumbest possible way to do this.”

If Trump does go forward with another round of tariffs, they will almost certainly begin hitting products that Americans widely purchase, including household items, furniture, and clothing. The Trump administration pointedly avoided placing additional taxes on those items in the first smack against Beijing; in threatening to come around for a second pass, Trump has manufacturers and retailers concerned – both importers as well as exporters who depend on a line of sale to China.

China, thus far, has signaled that it will not back down. A spokesman for Beijing’s Ministry of Commerce said Friday, “The Chinese side will follow suit to the end and will not hesitate to pay any price and will definitely fight back. It must take a new comprehensive approach and firmly defend the interests of the country and the people.”

Of course, the problem on their side is that they may soon be out of American products on which to raise tariffs. The fact of the matter (and one of Trump’s primary points) is that we have a massive 5-to-1 trade imbalance with China. If Trump goes through with his threats and China retaliates again, well, Beijing is basically all in. The Trump administration can then simply wait them out or let them figure out how to sell their products elsewhere while American manufacturing picks up the slack.

At least, that’s the rosiest picture of a future where neither side blinks. Hopefully, it won’t come to that, because it could be devastating for the global economy and hurt many American businesses in the interim. We suspect that there are plenty of backchannel communications between Washington and Beijing right now and that we will see an amenable settlement sooner than later. The naysayers have doubted Trump time and again, and time and again, his tough approach has proven to be the right one. That may not hold true in every instance, but we have a feeling it will this time.

Written by Andrew

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