As America engages in a Trump-ignited trade war with China, the commander in chief needs to recognize two things, warned one U.S. congressman.
“Trade wars are not easy to win, and the United States is a country, not a business,” said Rep. Ted Deutch (D-Fla.). “When you tamper with economy via a tweet, you are hurting people’s lives, not just some bottom line.”
As President Donald Trump continues to bait China into a full-fledged trade war, CNBC reported that economists and investors worry about worst-case scenarios that could affect the global economy — and America.
This comes after China announced that it may put tariffs on $50 billion worth of U.S. goods in retaliation against the Trump administration’s threat to impose 25 percent duties on Chinese imports.
Markets were sent spinning after that announcement, falling by more than 1 percent and then rebounding later, while everyone is now wondering what might come next.
If the trade fight escalates, then more tariffs could be slapped on more goods. But China could fire back in a far more significant way, selling a large chunk of the $1.17 trillion of U.S. treasury bonds it holds, experts told CNBC.
Over the past several years, China has bought scores of treasury bonds partly because it has U.S. dollars it needs to spend. Just like any investor, China wants to put some of the money it’s made from exports to the United States into safe investments, and there’s nothing safer than U.S. bonds.
For the most part, China, which has owned about $1 trillion of U.S. bonds for several years, has held on to these assets, collecting billions in interest payments.
It did reduce some of those assets in late 2016 and early 2017 to help offset an increase in the yuan, but it’s already bought back much of what it sold.
If China decided to sell off those bonds in retaliation, it could cause major havoc on international markets, said Jeff Mills, co-chief investment strategist at PNC Financial Services Group.
“It’s something they could do,” Mills told CNBC.
Already, Sen. Jeff Flake (R-Ariz.), a frequent Trump critic, has introduced legislation to nullify what he said was Trump’s ill-conceived tariffs on steel and aluminum.
In a published report, Sen. Pat Roberts (R-Kan.) said he’s losing hope that the president will listen as agriculture trade groups mobilized their thousands of members to urge Trump to take a less punitive approach to trade policy — or risk harming some of his most loyal voters in rural communities.
While several states have reported they would suffer greatly from a protracted trade war with China, it appears the effects of such action would have little direct effect on D.C. residents. Still, it could be devastating for America as a whole, according to multiple reports.
And China isn’t backing down. CBS News noted that state-run media in China predicted that the Chinese government would win any trade war with the United States. China has already retaliated by targeting industries such as pork, beef and soy beans that are important in Republican-leaning states — Trump’s base.
One Moody’s economist said the U.S.-China tariffs war will cost 190,000 American jobs and shave some gross domestic product (GDP) growth from the economy.
“This trade war is going to make it pretty viable to beat Trump in a Republican primary in Iowa in 2020,” said attorney David Jolly, a former lobbyist and retired politician who served as congressman in Florida’s 13th Congressional District from 2014 to 2017.
The Trump administration contends that if it does not challenge Beijing now, the Chinese government will heavily subsidize its companies to become dominant producers in cutting-edge industries from robotics to electric cars.
That could imperil the United States’ ability to create good-paying jobs for future generations, relegating the country to producing food, fossil fuels and financial services, while China extends its lead as the world’s largest manufacturer, The New York Times reported.
But the administration’s strategy for halting China’s rise has been hard to discern, with some advisers insisting that China must remake its economy, while others say the priority is to reduce the trade deficit, prioritize market access for American companies or end China’s infringement on American intellectual property, The Times reported.
Some top officials have indicated the tariffs may never be implemented.
“China has many ways it can make life exceedingly uncomfortable for a large number of American businesses,” said Eswar Prasad, a professor of international trade at Cornell University. “Both those that are hoping for access to China’s fast-expanding market, and those that use China as an important part of their supply chains.”