US-China 'Trade War 2R'... Impact on Domestic Economy

Concerns are spreading about the impact of the trade war between the United States and China on the global economy as they announce high tariffs against each other.

According to related industries on the 5th, President Trump announced on the 2nd (local time) that he would impose reciprocal tariffs (including a basic tariff of 10%) on all trading partners, applying a 34% tariff rate to China. In response, China announced a 'retaliatory' tariff of 34% on the same day.

In addition, China announced export control measures on rare earths and a ban on the export of dual-use items (items that can be used for both military and civilian purposes) to 16 US defense companies.

Since President Trump took office on January 20, he has twice raised tariffs by 10% on China, citing China as the source of the synthetic drug fentanyl entering the United States. At that time, China took retaliatory measures but limited them to certain items such as liquefied natural gas (LNG), showing a somewhat defensive response.

However, China has taken a 'strong offensive mode' by not only imposing retaliatory tariffs but also controlling rare earth exports, which account for more than half of the world's production.

Starting from the 5th, President Trump's reciprocal tariff drive, which includes a 'basic tariff' (10%) of a universal tariff nature, is targeting the entire world. As international public opinion is not favorable to the US and domestic stock prices are plummeting daily, China seems to have judged that the situation is not unfavorable to them.

If the US and China raise additional tariff barriers against each other, it is expected to have a significant impact on the global economy. If Chinese products that cannot enter the US market due to high tariffs are released at low prices in markets other than the US, Korea may face a 'double whammy' of a 25% reciprocal tariff on US exports and a large influx of Chinese goods.

Meanwhile, there are about five days left to avoid a full-scale confrontation between the US and China. If the reciprocal tariff executive order signed by President Trump, which targets each country, takes effect on the 9th, an additional 34% tariff will be applied to China, and China will respond with an additional 34% tariff on US products from the next day.

During President Trump's first term, in 2018, the US imposed a large number of tariffs on Chinese products, starting a trade war. Eventually, the two countries exchanged tariffs and retaliatory tariffs, leading to a temporary agreement in early 2020 known as the Phase 1 trade deal. The agreement involved broad tariff exemptions and the purchase of US products worth $200 billion, but its implementation was disrupted amid the COVID-19 pandemic.

Yisongryeol Hankyung.com reporter yisr0203@hankyung.com