4 reasons why Trump's China strategy is 'very risky'

Visitors tour the Forbidden City decorated with red lanterns and illuminated with lights during the Lantern Festival in Beijing Tuesday Feb. 19 2019

U.S. President Donald Trump on Monday warned China not to retaliate against a hike in tariffs he imposed last week and said that the nation "will be hurt very badly if you don't make a deal".

Wall Street's main indexes fell more than 2 per cent on Monday after Beijing announced plans to retaliate with higher tariffs on US goods, raising fears that another round of tit-for-tat measures could push the USA economy toward recession.

China's foreign ministry had earlier said the country will never surrender to external pressure after Washington renewed threat to impose tariffs on all Chinese imports in an escalating trade dispute.

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When Chinese companies pay tariffs to export products to the USA, their American customers typically absorb the expense in the form of higher prices.

That move comes after the Trump administration hiked tariffs from 10% to 25% on $200 billion in Chinese exports last week, while Chinese negotiators were still in Washington, and then proceeded to initiate steps late Friday, after negotiations broke down, to expand tariffs to cover nearly everything else China sells to the US.

As US President Donald Trump made the case Monday on Twitter that tariffs were boosting the pace of US economic growth, Beijing finally announced its retaliation against the newest trade war escalation. Many economists predicted the tariffs imposed on steel, aluminum, and Chinese imports a year ago would have much bigger economic effects than they have. Battling China over what are perceived as its unfair trade practices is an issue that resonates with USA voters on both ends of the political spectrum, he said.

"If you add $30 billion of tariffs in the second quarter, that's like having a $120 billion tax increase", Holtz-Eakin said. In terms of the trade war itself, negotiations will continue as China will press for a win-win agreement in spite of the fact that Trump has publically claimed that he enjoys the gamesmanship element of the trade war. "But the latest tariff escalation is far too great a gamble for the USA economy".

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The president said Monday that that's not inevitable.

Officials appeared to be studying the potential impact on China's economy before picking their next steps, said Jake Parker, vice-president of the U.S.

White House economic adviser Larry Kudlow said on Sunday there was a "strong possibility" Trump will meet Chinese President Xi Jinping at a G20 summit in Japan in late June.

Kudlow also argued that Trump's trade policies were "a risk we should and can take without damaging our economy in any appreciable way".

Stocks are plunging at the open on Wall Street Monday after China announced retaliatory tariffs against goods from the United States.

On Friday, Trump raised tariffs on $200 billion of Chinese goods, from 10 per cent to 25 per cent. And slower US economic growth could even hurt domestically focused companies. "Though we are glad that the administration is considering additional assistance, such temporary solutions are not sufficient to address the permanent damage the trade war has inflicted on agricultural export markets". That's 70 per cent of the US economy.

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