On July 6, the United States will impose tariffs of 25 per cent on US$34 billion (S$46 billion) worth of imports from China. That will mark the beginning of what threatens to evolve into an escalating tit-for-tat tariff war between the world's top two economies - and which will be good for neither of them, nor the rest of the world. The initial round of US tariffs could be followed by a second round on an additional US$16 billion worth of Chinese goods, on which the US Trade Representative's Office is currently fielding comments. But that is not where it will end. China has vowed to strike back with tariffs of the "same strength". The Trump administration then upped the ante, threatening yet another round of tariffs on US$200 billion worth of Chinese goods if China retaliates and does not change its allegedly protectionist trade practices. To boot, on June 30, it is expected to announce new curbs on Chinese investment in the US technology sector. The Trump administration has already enforced tariffs on steel and aluminium, including on US allies in Europe as well as Canada and Mexico. Those countries, too, are retaliating with tariffs of their own on US goods.
We are, it seems, headed for a trade war on multiple fronts. The world's stock markets, which have corrected in recent days, clearly recognise this risk. US President Donald Trump and his more hawkish trade advisers are wagering that the United States can weather the damage better than its trade partners. This is a dangerously risky gamble, both economically and politically.