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What Trump’s trade war with China means for American consumers

The trade war between the world’s two biggest economies is escalating, as China announced it will raise tariffs on $60 billion worth of U.S. imports, in response to tariffs President Trump levied Friday. Trump remained confident about the U.S. economy’s overall strength, saying “I love the position we’re in.” But will American consumers? Judy Woodruff talks to The Wall Street Journal’s Greg Ip.

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  • Judy Woodruff:

    The trade war between the world's two biggest economies escalated today, and U.S. stocks, headed to new records just weeks ago, posted their worst losses in a quarter of a year.

    The markets were bracing for a sharp drop today when China announced that it would raise tariffs on $60 billion worth of U.S. imports. Neither side prepared to offer new concessions publicly. President Trump raised tariffs on Friday and then he repeated his threat today to raise tariffs on another $325 billion worth of Chinese goods.

    He said he remained confident the U.S. economy could handle any hit, including to some farmers who are feeling the pain.

  • Donald Trump:

    This is a very positive step. I love the position we're in. There can be some retaliation, but it can't be very, very substantial by comparison.

    And out of the billions of dollars that we're taking in, a small portion of that will be going to our farmers, because China will be retaliating probably to a certain extent against our farmers.

  • Judy Woodruff:

    While the president boasted about additional tariff revenue coming into the country, he has previously overstated just how much money the government would take in and he has denied American consumers will feel much of the hit.

    This is in direct contradiction to what many economists and experts say has already started happening and will increase later this year and next.

    For those companies upset over the tariffs imposed on Chinese goods and how it affects their product line, he said there was another solution.

  • Donald Trump:

    If they don't want to pay tariffs, make it here or buy it from another country that is a non-tariffed country. So whether you go to Vietnam or so many others, you can do that.

  • Judy Woodruff:

    But many companies say it would be very difficult for them to do that with prices that would keep them competitive.

    So let's pick up on these questions now and more with Greg Ip. He's been following this for The Wall Street Journal.

    So, Greg, I think it's gotten — we think it's gotten serious now? The U.S. imposed tariffs under President Trump. The Chinese have now retaliated. Companies in this country are going to feel some of the pain, despite what the president is saying, aren't they?

  • Greg Ip:

    Well, absolutely.

    I think up until now, there had been a widespread assumption among most companies and investors that there was going to be a lot of friction, but the two sides would eventually work it out.

    I think the breakdown in talks in the last week is very troubling. It suggests that what the U.S. wants has really begun to bump up against some red lines the Chinese have about not giving up their sovereignty.

    So a lot of companies are going to have to prepare themselves for the possibility these tariffs will be permanent. We have already had a lot of anecdotal reports of companies like GoPro moving camera production to Mexico, Steve Madden moving shoe production to Cambodia.

    There are reports at Foxconn, which makes the iPhone for Apple, is looking at making it in India. You're going to see many more reports and plan-making like that, as companies prepare for these contingencies.

  • Judy Woodruff:

    So when the president says, as we just heard him say, that companies are going to have to move, many of them will move their business, you're saying that's already beginning to happen?

  • Greg Ip:

    That's already beginning to happen.

    And there will be costs to Americans, because, keep in mind, the reason they're being made in China now is, it's the most efficient, cost-effective place to do so. These other locations will at the margin be more expensive.

  • Judy Woodruff:

    Greg, to what extent are we looking at a — I don't know, a breakthrough in U.S.-Chinese relations? I mean, these are two countries, as we said, largest economies in the world. We have had this enormous trading relationship going on.

    What does this actually represent?

  • Greg Ip:

    I think what we could be looking at here — this all depends, of course, on the outcome of the talks — is a potential rupture in what is the largest and most important economic relationship in the world today.

    We have seen these frictions building up, not just under Trump, but it's actually bipartisan. There's a lot of suspicion by Democrats and Republicans that China, since joining the World Trade Organization in 2001, has not played by the rules and cannot be treated like other countries.

    We have seen multiple moves on the security and law enforcement side to try and push China out of the U.S. economy, banning Huawei, banning other companies from doing business in China, telling American companies they can't sell technology to certain Chinese companies, for fear of losing intellectual property and so forth.

    We could be looking at a multiyear process of these two economies becoming disengaged.

  • Judy Woodruff:

    And so what does that mean in terms of the overall economic picture? I mean, we saw the markets reaction today, the Dow, the Nasdaq. I mean, across the board, there was a negative reaction.

  • Greg Ip:

    It's a huge — a lot of the negative reaction is because we just don't know. It's uncertainty. When people are uncertain, they disengage, they sell.

    The positive scenario is, this is all posturing. The tariffs that China and the United States have announced do not take effect until June 1. That gives a few more weeks to discuss. It's possible that they manage to basically compartmentalize some of the national security issues, and everything else continues as it was before.

    If there's a complete breakdown, we're looking at much higher tariffs and trade barriers and frictions, and the rest of the world, in effect, having to choose sides between whether they want to do business with China or with the United States.

  • Judy Woodruff:

    But it sounds as if you're saying it's still very much a guessing game.

  • Greg Ip:

    It really is.

    Both sides have very strong incentives to reach a deal. President Trump wants a strong economy. He wants a strong stock market. All of that's essential to his reelection. American companies want to continue to do business in China.

    China wants to maintain its reputation as a strong and reliable source. But it may be — and this is what we're going to find out — that the truth sides that — just cannot reconcile what they want from each other.

  • Judy Woodruff:

    What can we learn, Greg Ip, from what's happened in the past, when there have been trade battles between the United States and other countries?

  • Greg Ip:

    We don't have a good template for this. The two best examples you would look at would be the U.S. vs. the Soviet Union, when we were like strategic adversaries.

    And so, essentially, the world divided into these hermetically sealed spheres. If you did business with the United States, you probably didn't do business with the Soviet Union.

    That's not like China. It's an adversary today, but it's heavily integrated. We had trade frictions with Japan, but our frictions with Japan never entered in the strategic sphere because Japan was an ally.

    I think that one of the reasons this is so complicated is that China is both this enormous economic partner, but this very formidable geostrategic adversary.

  • Judy Woodruff:

    And so in terms of what happens next, the markets are clearly watching, the companies that depend on doing business with China watching very closely.

  • Greg Ip:

    I think the very — what you need to watch is the signals, the body language coming out of coming meetings. Will the Americans fix on a date to go back to China?

    What happens as that June 1 deadline approaches?

  • Judy Woodruff:

    Greg Ip with The Wall Street Journal, thank you very much.

  • Greg Ip:

    Thanks for having me.

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