Hopes for easing trade tensions between China and the U.S. ran aground the reality of Chinese resistance to reform Friday when China said it would impose new tariffs on $75 billion of U.S. products.
The tariffs will range from 5 percent to 10 percent and cover the U.S. goods not covered by earlier rounds of tariffs. In addition, China will move forward with plans to impose tariffs on U.S. vehicles and auto parts.
The new tariffs are clearly retaliation for the Trump administration’s decision to move forward with tariffs on $300 billion of Chinese goods. The Chinese tariffs will take effect in two waves, the first on September 1 and the second on December 15. Those are the same dates the new U.S. tariffs are set to be imposed.
The tariff announcement appeared to catch Trump administration officials off-guard. On Thursday, White House economic adviser Larry Kudlow was speaking in positive tones about trade negotiations and said he expected further face-to-face talks to be held in Washington, D.C. in September.
Financial markets were also caught off guard. Stock futures indicated stocks would decline when markets opened.
President Donald Trump appeared to be reacting to the China news when he tweeted that the Federal Reserve should “show their stuff.” Trump has been pressuring the Fed to cut interest rates by as much as a full percentage point. Fed officials have indicated that they may cut rates if trade tensions worse–which they did with Friday’s announcement.
China imports far less from the U.S. than the U.S. does from China, limiting China’s ability to damage the U.S. economy through tariffs.
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