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Trade war

US tariffs spark vicious cycle of retribution

Escalating trade feuds with China, Canada and Europe endanger growth worldwide

WASHINGTON/BEIJING -- U.S. President Donald Trump's tariffs on steel, aluminum and now Chinese imports have prompted retaliatory measures from China, Europe, Canada and even India, bringing much of the world to the brink of a trade war.

After Trump said Friday that his administration would impose 25% tariffs on $50 billion in Chinese goods starting next month, Beijing's response was swift yet meticulously planned. The Commerce Ministry issued a statement vowing to levy duties on the same scale and released a list of targeted items just five hours later, before 2 a.m. local time Saturday.

The list covers 659 items, making it a more extensive set of goods than Beijing threatened to hit with retaliatory tariffs back in April, but still totals $50 billion in American imports.

Aircraft were left off the new list, replaced by an array of agricultural and energy products. Though China had been expected to cast a wider net for farm goods, the levies on crude oil and natural gas came as a surprise, as they risk accelerating inflation in a country that is a net importer of both fuels.

Beijing had agreed this month to buy an additional $70 billion in American products -- including in agriculture and energy -- should the U.S. forgo the new levies. China's retaliatory tariffs in these areas are calculated to deal political damage to Trump's Republican Party as it seeks votes from these key constituencies in midterm elections this fall.

With neither the U.S. nor China giving an inch, American businesses -- particularly growers of soybeans, a major export targeted by Beijing and now on the tariff list -- are getting nervous.

"The use of food as a weapon in trade disputes is of grave concern," said Bill Shipley, president of the Iowa Soybean Association. "It threatens the security and stability of the people and economies of China and the United States, including millions of U.S. farm families."

Washington's new levies come on top of the 25% steel tariff already imposed by the Trump administration, which has raised steel prices in the U.S. by 40% since January, to the dismay of American businesses.

Trump warned Friday that the U.S. "will pursue additional tariffs if China engages in retaliatory measures." His administration is already weighing duties on another $100 billion in Chinese goods.

American research firm Oxford Economics estimated that tariffs on imports worth $150 billion by both sides would slash each country's gross domestic product by 0.3% to 0.4%.

The growing trade dispute extends beyond the U.S. and China. The European Union and Canada have announced plans to slap duties on a number of American products in retaliation for the steel and aluminum tariffs.

The Organization for Economic Cooperation and Development projects a 1.4% drop in global GDP if the U.S., EU and China take actions that raise trading costs with all partners by 10%. Internal documents from the U.S. Chamber of Commerce estimate that a trade war among the three economic powers would cost more than 600,000 jobs.

Harley Davidson entered the Indian market in 2009. Large American motorcycles will face an additional 50% duty in the country.   © Reuters

Emerging markets are joining the fray as well. India informed the World Trade Organization on Thursday that it plans to increase tariffs on 30 U.S. goods, including an additional 50% duty on motorcycles with engine displacements above 800cc. The new duties will take effect as early as June 21, according to local media.

New Delhi aims for a similar impact to the steel and aluminum tariffs, which it estimates would earn Washington $241 million from Indian products alone. India accounts for about 3% of U.S. steel imports, on par with China.

The Trump administration also is considering imposing duties on imported vehicles under the same national security provision used for the steel and aluminum tariffs. Some officials expect a decision before the midterm elections in November.

The potential automobile tariff represents a different order of magnitude from the duties on steel, which makes up just over 1% of American imports. The U.S. brings $360 billion worth of autos into the country annually, accounting for 15% of all imports.

Such a tariff threatens hefty economic damage for the U.S. along with auto exporters. Private-sector analysts estimate that a 20% increase in the price of Japanese cars, for example, would slash Japan's auto exports to the U.S. in half and reduce the Asian country's GDP by 0.6%. Projections also show higher car prices cutting American GDP by 0.5%.

Nikkei staff writer Yuji Kuronuma in New Delhi contributed to this article.

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