China and Europe Promise Retaliation against U.S. Tariffs

What Happened?

China and the European Commission both promised to retaliate against the new round of tariffs imposed by U.S. President Donald Trump on nearly all goods imported into the U.S. 

The new tariffs announced yesterday by President Trump include 34% on China, 27% on India, 24% on Japan, and 20% on the European Union. 

The total tariffs on China will be 65% after the new round takes effect. 

Stock markets in Asia, Europe, and the United States fell after the new tariffs were announced.

Why it Matters

The sweeping new tariffs imposed by the Trump Administration represent the second largest round of taxes on imported goods in the past one hundred years. The reactions from abroad were swift. 

Germany’s Minister of Economics captured the mood in Europe by saying “American tariff mania could trigger a spiral that could also drag countries into recession and cause massive damage worldwide.” 

China criticized what it called “U.S. protectionism” and vowed to reciprocate with new tariffs on U.S. goods shipped to China. Australia’s Prime Minister said “The administration’s tariffs have no basis in logic, and they go against the basis of our two nations’ partnership. This is not the act of a friend.”

President Trump justified the tariffs by claiming they are necessary because the U.S. has been “looted, pillaged, raped and plundered by nations near and far, both friend and foe alike.” 

It’s impossible to square those comments with economic reality because the U.S. remains the largest economy in the world and the most productive by every available measure. The U.S. has legitimate economic grievances against some of its trading partners. But it’s unclear how across-the-board tariffs targeting almost everyone will help resolve those. 

There are no instances in the past where massive tariffs led to economic growth or prosperity. But there are plenty of examples of how tariffs contributed to two world wars in the first half of the twentieth century. 

In the twentieth century economic warfare contributed to the outbreak of actual warfare. It worsened relations between potential enemies and increased the economic difficulties each faced at home. 

Poor economic conditions were one of the key factors that fueled Hitler’s rise to power in Germany in the 1930s. 

The head of the European Commission said European nations are “now preparing for further countermeasures to protect our interests and our businesses if negotiations fail.”

How it Affects You

The impact of the tariffs depends largely on how long they remain in effect. If high tariffs are kept in place for an extended time period, then it’s likely American consumers will pay more for goods.

At the same time, they’ll have fewer choices about what they buy because of reduced selections. 

Reciprocal tariffs from other countries could spiral into a serious trade war, harming the economy not just of the United States but of Europe and Asia as well. 

To avoid a trade war and economic damage, the tariffs could spur new rounds of diplomacy to address the underlying grievances, but so far there is little indication that will happen anytime soon.