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Are we in a trade war yet?

Are we there yet?Has Donald Trump started a trade war with China, the world's second largest economy? ...

Posted: Apr 4, 2018 3:41 PM
Updated: Apr 4, 2018 3:41 PM

Are we there yet?

Has Donald Trump started a trade war with China, the world's second largest economy? Wall Street certainly is worried he has. Economists aren't as sure.

This week, the United States announced a range of tariffs on Chinese goods, claiming that China is stealing US intellectual property. China responded with its own tariffs on US goods within hours. The moves follow US tariffs that were imposed earlier this year on Chinese steel and aluminum, which also prompted a response from China.

But economists say the US isn't in a trade war, at least "not yet."

Related: 'Trade wars are good?' Two words - Great Depression

"The odds have gone up considerably," said Bill Reinsch, senior adviser at the Center for Strategic and International Studies, a think tank.

"What happened so far is what typically happens - we do something, they do something back more or less equivalent, then we glare at each other," he said. "The war starts if they do something in excess of what we've done, or if we counter-retaliate to what we've done."

It's that risk of escalation that has the experts so scared.
"The rhetoric is different this time around," said Jay Bryson, international economist with Wells Fargo. "This is most serious situation I can think of in at least the last 40 or 50 years."

Of course, there have been countless tariffs and trade disputes in the past that never escalated to the status of full-blown trade war. And the latest US tariffs won't even take effect until at least next month. But if the US does get into a full-scale trade war, it would be the first time since the Great Depression.

Related: US China trade battle - How we got here

It's difficult to determine what constitutes a trade war, since there isn't a bright line between a trade dispute and a war. "There isn't a hard and fast definition," said Bryson.

But some developments would clearly signal that we're in a trade war.

"If the Chinese decide to devalue the yuan, if they throw American companies out or make it hard for American companies to come in, if they decide to cut back on direct investment in the US, that's a war," said Mark Zandi, chief economist for Moody's Analytics.

Even if the current trade skirmishes don't constitute a full war, they can still cause pain for many US businesses and their employees. That includes companies that can no longer sell goods and services to China, and businesses and consumers who can no longer buy the lower priced Chinese imports they've come to depend upon.

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