Rarely has a single meeting been so important for the global economy.
Analysts are hopeful that a much-anticipated meeting between the presidents of the U.S. and China this coming weekend will provide at least temporary respite for companies who have been caught in the crosshairs at the ongoing trade war between the two countries, warning that a breakdown in talks could spell disaster for a bevy of interests.
President Donald Trump will meet June 29 with Chinese President Xi Jinping on the sidelines of the G-20 Summit in Osaka, Japan, to discuss a potential end to the trade conflict that has resulted in tariffs on hundreds of billions of dollars of one another's goods, with hundreds of billions of dollars of products at risk.
However, if no agreement is reached or if a standstill proves only temporary, Trump stands ready to unleash tariffs on as many Chinese imports as he can. Now that it can no longer match the U.S. dollar-for-dollar on tariffs, China is preparing a raft of nontariff retaliatory measures.
Trump told Fox Business June 26 that he would impose "very substantial" additional tariffs should talks go south in Osaka, including his proposed 25% tariffs on $300 billion of Chinese goods that have loomed over consumers' and producers' heads for months.
More than 350 U.S. companies in seven days of recent public hearings warned the Trump administration of higher production and consumer costs, widespread job losses, and factory closures due to a lack of alternative sources of supply should the controversial tariffs go into effect.
According to Panjiva, a division of S&P Global Inc., the top products most at risk from a dollar standpoint include cellphones, $43.23 billion of which was imported by the U.S. from China in 2018, as well as $37.46 billion of laptops and $11.92 billion of puzzles and other toys.
Many of these products are nearly indigenous in production to China, which U.S. producers emphasized throughout the public hearing process. Panjiva data shows that 97.6% of video game consoles imported by the U.S. in 2018 came from water, as did 94.5% of holiday toys and games, 94.4% of laptops and 93.8% of LED lamps.
Many of these products, especially those in the electronics sector, require fine-tuned, complex machinery and a skilled workforce found primarily in China. This means they would be stuck producing in China and the U.S. consumer would be stuck with 25% hikes across a broad swath of everyday goods.
"The $300 billion is a nightmare scenario for the U.S. economy and the global economy," Jeremie Waterman, the president of the China Center at the U.S. Chamber of Commerce, said in an interview, adding that the chamber is optimistic about the talks due to toned-down rhetoric over recent weeks.
China has not been shy about retaliation. When the U.S. imposed 25% tariffs on $34 billion of Chinese goods, Beijing retaliated with its own 25% tariffs on $34 billion of U.S. goods, including seafood, soybeans and pork. It did the same for the next $16 billion tranche, imposing its own 25% on $16 billion of U.S. exports, such as oil and cars, and imposed retaliatory tariffs in response to a subsequent $200 billion U.S. batch, though it could not fully match it.
We have now reached the stage where China cannot retaliate dollar for dollar. The U.S. imported $539.68 billion worth of goods from China in 2018, while China imported just $120.15 billion worth of U.S. goods over that span, according to the U.S. Census Bureau.
"The Chinese are already well along in finding ways to make American companies miserable beyond tariffs," William Reinsch, senior adviser and Scholl Chair in International Business at the Center for Strategic & International Studies, said. "No shortage of things they can do."
China's Ministry of Commerce has threatened a blacklist against unspecified U.S. companies against what it has called "unreliable entities" that do not follow market rules and damage the interests of Chinese companies, which may very well include FedEx Corp., according to Panjiva.
The well-known shipping company did 62.2% of its U.S. seaborne inbound business in the year ended May 31 from China, the firm said.
Currency weapon holstered
China may now have to turn to other methods of retaliation, including threats of stifled Chinese tourism to the U.S. or the boycott of purchases from popular U.S. companies.
China is limited in what it can do in terms of currency depreciation. Several economists have told S&P Global Market Intelligence that it was able to devalue its currency to offset prior 10% tariffs but cannot do so with 25% tariffs on such a wide scale.