WASHINGTON—Fears of a full-blown global trade war moved closer to reality when the U.S. delivered on a threat to impose a 25 percent tariff on $50 billion worth of Chinese imports, including auto parts critical to the U.S. supply chain, and China quickly retaliated with a tariff targeting an equivalent amount of U.S. goods, including autos.
The volley of fire dashes hopes for a more amicable resolution of the U.S.-China trade dispute, hopes that were raised just a month ago when China agreed to substantially lower tariffs on imported vehicles following pressure from President Trump.
If the China action moves ahead as planned July 6, it would hit Tesla and German luxury auto makers hardest. Mercedes-Benz and BMW are big exporters of crossovers and SUVs to China from their U.S. plants. Tesla exported 14,779 U.S.-built vehicles to China last year.
The Detroit 3 would be less affected because most of their sales in China come from locally produced vehicles, though Ford and FCA have accelerated exports to China.
Trump ordered the tariffs in response to Chinese requirements for technology transfers as a condition for doing business in China, and to counter alleged cyberthefts of trade secrets from foreign companies. Business groups from the Motor and Equipment Manufacturers Association to the U.S. Chamber of Commerce said they agreed with the need to protect U.S. intellectual property, but that tariffs were the wrong tool because they mostly hurt U.S. businesses and consumers.
The U.S. tariffs will come in two rounds: The first, effective July 6, targets 818 products worth $34 billion. The second, covering 284 products worth $16 billion, will undergo further review before a final decision, and could involve additional tariffs.
The next shoe to fall could be another round of threatened U.S. tariffs on $100 billion of Chinese goods.
U.S. and Chinese officials have had negotiations to resolve the tariff dispute, which experts say can be contained with minimal economic impact at current levels. The talks are complicated by China's ability to influence North Korea in its denuclearization talks with the U.S. as well as an effort in the Senate to penalize Chinese telecom company ZTE for violating U.S. sanctions on Iran after Chinese President Xi Jinping persuaded Trump to soften the original penalty.
Trump has angered many U.S. allies and members of his own party with protectionist moves such as tariffs on steel and aluminum. But reaction has been mixed on his actions against China, which many business groups and lawmakers in both parties view as an untrustworthy trading partner.