The battle between the world’s two largest economies is hotting up – here’s the lowdown

US-China trade war: all you need to know about Trump's tariffs

Donald Trump has raised the stakes in the simmering US-China trade war, imposing higher tariffs on $200bn (£154bn) of Chinese goods. Here are the answers to key questions about the dispute between the world’s two largest economies.

What has Donald Trump done?

The US president has ratcheted up existing import tariffs of 10% on certain Chinese goods sold in the US to 25%.

The increase came into effect on Friday on a long list of products shipped after 12.01am EDT.

There was no breakthrough in talks in Washington between the US trade representative, Robert Lighthizer, and the Chinese vice-premier Liu He before the midnight deadline.

Trump has warned 25% tariffs could be imposed on a further $325bn of goods in future, which would mean all Chinese imports being covered by tariffs.

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How will China respond?

The short answer is, we do not know. Geng Shuang, at China’s foreign ministry, told reporters to “stay tuned” about any retaliation.

In a statement shortly after the tariff increase came into effect, China’s commerce ministry said it “deeply regrets” the need to take “necessary countermeasures”.

What is clear is that Beijing will not be able to impose reciprocal tariffs, because China’s imports from the US are less than $200bn. But it does have other options, including raising existing tariffs, restricting US companies in China and making it tougher for Americans to qualify for visas.

That said, China has also expressed hope both sides could reach an agreement.

How have markets reacted?

Recent stock market moves had been relatively muted as negotiations continued, but Trump’s escalation of tensions at the start of the week prompted a major selloff. On Tuesday, the Dow Jones industrial average had its worst one-day drop since January.

However, there was little reaction in European markets on Friday morning, with all investors firmly focused on the talks.

Investors also took heart from the unofficial grace period offered by Washington, which means goods that set off from China to the US before the midnight deadline will still be taxed at 10%.

What tariffs were in place already?

These are only the latest tariffs imposed in the tit-for-tat dispute. Washington has put tariffs on some Chinese goods sold in the US for about a year. They are on top of broader tariffs used by Trump that have affected China and other trading partners such as the EU, Canada and Mexico, on goods including steel and aluminium.

The Trump administration imposed 25% tariffs on $50bn of Chinese tech goods in June 2018, covering aerospace, automobiles, communications and robotics, in an attempt to hinder Beijing’s “Made in China 2025” initiative aimed at strengthening its manufacturing and technology base.

The White House then imposed tariffs of 10% on $200bn of goods in September, on a wider range of products including food ingredients, construction materials, bike parts and burglar alarms. These are the tariffs that have been increased to 25%.

China has retaliated to previous measures with $110bn of tariffs on US goods, including agricultural produce such as soya beans, as well as cars, luggage, electronics, housewares and food.

What does Trump hope to achieve?

The roots of the dispute are Trump’s “America first” project to protect the US’s position as the world’s leading economy, while encouraging businesses to hire more workers in the US and to manufacture products there.

Trump complains of a large trade deficit with China, which he views as a symbol of the US’s decline as a manufacturing powerhouse. According to US Census Bureau data, Chinese imports to the US totalled $539.5bn last year, while $120.3bn was sold the other way – a trade deficit of $419.2bn.

The US president has accused Beijing of “unfair” trade policies, including allowing the theft of US companies’ intellectual property. The threat of import tariffs on Chinese goods is being used as leverage in talks in which Trump is seeking changes to Beijing’s trade policy.

What does it mean for consumers?

Trump has sold the tariffs as a boon for US workers (and voters) that will bring back employment to “rust belt” industrial areas that have lost jobs to China. However, the overwhelming economic consensus is that tariffs are mostly passed on via higher prices – ultimately paid by those same workers.

Shipping times between the US and China mean the majority of price increases are likely to be passed on in two to four weeks’ time – enough time for a deal that would avoid higher prices and potentially dodge a significant blow to economic growth.

Is a peace deal still possible?

Trump is well known for ramping up the rhetoric in trade talks and has previously said he can only secure new trade deals by threatening or imposing tariffs on trading partners.

Having said that, the White House has confirmed talks between the two sides would resume on Friday, with hopes a deal could still be reached.

Trump said on Thursday he had received a “beautiful letter” from China’s president, Xi Jinping. He quoted Xi as saying: “Let’s work together, let’s see if we can get something done.”