By Clay Chandler and Eamon Barrett
September 22, 2018

Monday is T-Day in the escalating trade war between the US and China—as in T for tariffs. That’s the day when President Trump’s threat to impose duties of up to 25% on more than $200 billion in Chinese imports to the US will morph from tough-guy negotiating ploy to blunt legal reality.

The Chinese, for their part, have vowed that if those US levies are imposed, they will immediately call Trump’s bluff by slapping equivalent duties on more than $60 billion of US imports to China. Trump, anticipating that retaliation, has promised an even bigger tit-for-tat response. He’s threatened tariffs on a further $267 billion of Chinese-made goods, which would impose penalties on virtually all Chinese exports to the United States.

The bottom line: We’re about to go from a little pushing and shoving, in which tariffs affect only $50 billion of goods on each side, to an all-out slugfest in which each economy tries to hit the other with everything they’ve got. Where does it stop? Tariffs on iPhones? A permanent shift in Chinese agricultural imports? Chinese consumer boycotts on US products? The stakes are huge, and things are about to get very ugly very fast.

What’s especially scary about this confrontation is that Monday feels like a crossing of the Rubicon. Once this new round of tariffs has been imposed, it’s almost impossible to envision how either side will to step back.

In the US, China-bashing is political catnip—one of the few things on which leaders from both parties agree. As Trump girds for mid-term elections in November, he knows that taking a hard line on trade with China has little downside. True, it may risk undermining his support among US-based Fortune 500 businesses. But who cares? China-bashing is guaranteed to play well with ordinary voters as well as his conservative base.

Similarly, China’s president Xi Jinping can’t afford to be perceived as surrendering to US pressure. China’s state media has, for the last several weeks, pushed the idea that there’s no point in trying to negotiate with the US on trade because Trump’s tariffs are part of a broader “containment” strategy. Even private sector executives like Alibaba founder Jack Ma now feel compelled to parrot the party line that Trump’s tariffs aren’t about establishing a level playing field on trade but part of a wider plot to thwart China’s rise as a global power.

No wonder, then, that Beijing has scuttled plans to send Vice Premier Liu He to Washington next week for trade negotiations with US Treasury Secretary Steven Mnuchin. Xi seems to be betting that he’ll be in a stronger bargaining position in late November after Trump and the Republican Party have taken a drubbing in mid-term elections. That’s a dangerous gambit. Relations between the world’s two largest economies may yet get worse.

More China news below.

Clay Chandler
@claychandler
clay.chandler@timeinc.com

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