MI soybean farmers worry about bottom line in wake of new tariffs

Donald Trump and Xi Jinping have appeared to have a warm relationship in the past

Even before Friday, the trade dispute between the world's top two economies had rattled markets and prompted warnings from companies of damage to their bottom lines and higher prices for consumers.

Boeing sells a quarter of its planes in China, the second-biggest market in the world, and the U.S. aerospace giant is neck-and-neck with European rival Airbus.

Trump has also unwittingly given a shot of adrenaline to the 16-party Asian regional trade deal that would cover half the world's economy.

What is happening on Friday?

Beijing has said it will not "fire the first shot" in a trade war with the United States, but has made clear that Chinese tariffs on American goods would take effect immediately after US duties on Chinese goods are put in place.

In the first round though, the additional Chinese duties on US goods will have a significant impact on some items, risking lower sales.

Heavy equipment maker Caterpillar, for whom China is also its second-biggest market after the US, is off 13.5 percent over the same time.

Moscow also announced Friday it had slapped 25 percent tariffs on some U.S. goods, joining the global push-back against Trump's offensive.

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China, saying US officials have violated World Trade Organization rules, said it had no choice but to respond with tariffs of its own. We were going to get back to profitable margins for the first time in years.

As the trade war with China - caused by tariffs demanded by Donald Trump - heats up, the editors of the Wall Street Journal have taken the president to task, sarcastically mocking him as a "master negotiator" who has yet to negotiate any deals while causing damage to the US economy.

China has previously limited tour groups to pressure Taiwan and South Korea, noted the expert.

Since 1996, when the US exported only $414 million worth of soy to China, the crop has sprouted an exponential growth in trade.

But China also believes its economy, with a greater focus on domestic demand and a reduced dependence on exports, can ride out the storm.

"What else do we do?" he asked.

The Trump administration has already threatened to raise the stakes.

"You saw with China, 50 billion dollars - and another 200 billion dollars, frankly, is waiting".

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Image copyright Getty Images What could the fallout be?

The 10 per cent fall in the Shanghai stock market over the past weeks might not be wholly attributable to the trade war.

The US tariffs announced so far would affect the equivalent of 0.6% of global trade and account for 0.1% of global GDP, according to Morgan Stanley.

The American Petroleum Institute, which represents oil and gas producers, backed a bill that would have Congress vet future tariffs proposed on national security grounds. "Some firms may cut China out of their supply chain, but in other cases it will make economic sense to move USA production overseas". Trump has continued to threaten Beijing with escalating tariffs on as much as $450 billion worth of Chinese goods. Modern manufacturing runs on supply chains, in which the same product could cross multiple borders multiple times, to add value every time, before being incorporated into a final good for export.

Meanwhile, Trump's temper tantrum seems to have driven China closer to other countries it has had strained relationships with, such as India and Japan.

Chinese economist Hu Xingdou said that while China's development would be affected by the trade war, the effects would not be too deep so long as it kept its doors open and deepened its reforms.

"Its unruliness looks set to have a profoundly damaging impact on the global economic landscape in the coming decades, unless countries stand together to oppose it", added the editorial.

However, he added: "China may feel that United States universities have limited leverage over the Trump administration and limiting student numbers could undermine efforts to upgrade China's technical and scientific capabilities".

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