Trump's trade war with China shows no sign of slowing down, and it might be about to get even worse

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  • The US and China imposed another round of tariffs on each other on Monday, further escalating the trade war between the two countries.
  • All signs indicate their trade war is unlikely to end anytime soon, as President Donald Trump is threatening more tariffs and China called off planned talks.

The trade war between the US and China has escalated in recent days, and the likelihood of a near-term solution is quickly fading.

President Donald Trump's latest round of tariffs on roughly $200 billion worth of Chinese goods kicked in on Monday, bringing the total amount of Chinese goods faced with tariffs up to approximately $250 billion. In response, Beijing slapped tariffs on another $60 billion worth of US goods.

The new tariffs will likely push up prices for US businesses and consumers, according to economists, while also weighing on consumer confidence. It is unclear the degree to which the inflation would weigh on the broader US economy, but most experts expect the tariffs to be somewhat of a drag on growth.

The latest round of tariffs and reactions from Washington and Beijing have made it clear: the trade war isn't going to end anytime soon:

  • Most notably, China called off planned talks between mid-level officials over the weekend, and re-engagement appears to be unlikely until at least after the US midterm elections in November.
  • This sets up the possibility of no deal to reduce tariffs before 2019, which would mean Monday's tariffs would jump to 25% on January 1, 2019, further hurting global supply chains and raising prices on US consumers.
  • Trump has been already sabre rattling about another slate of tariffs on the remaining $267 billion worth of Chinese imports.

While tariffs have grabbed the headlines, the fight could spill out of direct trade channels. One of the reasons that China decided to cut off talks, according to reports, was the US State Department's crackdown on China's defence agency for purchasing goods from a sanctioned Russian arms exporter.

The news website Axios also reported on Sunday that the Trump administration plans to begin a public-relations campaign attacking the Chinese on security issues. According to the report, the US will highlight Beijing's alleged attacks, ranging from election interference to intellectual property theft.

Isaac Boltansky, a policy analyst at the research and trading firm Compass Point, said the broadside against China and continued threats of tariffs could trigger a more forceful response from Beijing.

"China’s retaliation this round was consistent with expectations, but there is a growing concern that China may choose to employ a broader suite of retaliatory countermeasures (e.g., higher comparative tariff rates, stalled regulatory approvals, brand boycotts, currency devaluation, [selling US Treasurys]) in subsequent rounds," Boltansky wrote.

While Trump and Chinese President Xi Jinping are not expected to speak at this week's meeting of the UN General Assembly, there is a chance talks could resume in the coming months during the Asia-Pacific Economic Cooperation and G20 summits.

Any talks would be encouraging, according to Chad Bown, a senior fellow at the Peterson Institute for International Economics. But he said that Trump's lack of a clear goal for the trade war — outside of vague assertions about the trade deficit — raises the likelihood that the negotiations could be fruitless.

"Unlike his frequent tweets and commentary about tariffs, Trump has not articulated exactly what he wants from China, or how he wants to achieve it," Bown wrote. "Until the president himself engages on this very critical question, his administration’s only likely outcome seems the costly and destructive path of tariffs."

Chris Krueger, a strategist at Cowen Washington Research Group, said Trump's lack of direction means the president is likely to fall back on his decades-long preference for trade protectionism — further exacerbating the situation.

"Perhaps the midterms soften Trump's trade narrative, though our belief is that whatever the outcome Trump will embrace his one core policy belief and ratchet up the tariffs," Krueger wrote Monday. "We are increasingly convinced that tariffs are not the means to the end, but the end."