A trade war is brewing as the Trump administration presses on with its tariff strategy to address the U.S. trade imbalance with China. The early weeks of April displayed a tumultuous dialogue between U.S. and Chinese officials as neither has relented on individual commitments to protect home industries.
Although President Donald Trump has reassured business leaders that the proposed tariffs will herald the acquiescence of Chinese officials, many in the business community have their doubts. Once the Trump administration announced on April 5 that an additional $100 billion worth of Chinese goods may be subject to U.S. tariffs, stocks stumbled and investors started to sell at a fever pitch.
However, according to The Wall Street Journal, much of the selling was light in volume and from small traders rather than big institutional investors.
For now, this indicates the prospet of a trade war has not worried the major players in the business community. If incendiary trade rhetoric continues, however, American farmers and large U.S. manufacturers may become troubled by the prospect of disappearing foreign markets and therefore diminishing profits, leading to further volatility in their stock prices. As it currently stands, the trade deficit between the United States and China is $375 billion.
The U.S. exports some $130 billion worth of goods to China, while the latter exports $505 billion to the U.S., according to The New York Times. Most U.S. exports to China are in the form of wheat, grains, feed, soybeans and other agricultural goods in addition to complex manufactured goods such as those produced by Caterpillar, Boeing and John Deere.
The Trump administration announced initially that $50 billion of Chinese goods would be taxed, and then, several days later, announced an additional $100 billion worth of goods would be taxed, totaling $150 billion. As a result of this announcement, U.S. exporters are stricken with the thought of unbridled trade retaliation from China.
The Washington Post reported that U.S. Republican senators are somewhat encouraged although disaffected by the tactics of the Trump administration. U.S. Sen. Mike Rounds of North Dakota is upset by the tariff announcement as many soybean exports from his constituents could become restricted from markets in China, and therefore suffer from reduced business.
U.S. Sen. Ben Sasse of Nebraska has reportedly said, “Hopefully, the president is just blowing off steam again. But, if he’s even half-serious, this is nuts.”
This frustration is also evident in the comments of Pat Toomey, Republican U.S. senator of Pennsylvania: “The administration is focused on the wrong problem and it is using the wrong tools to try to address it.”
Essentially, most lawmakers fear the potential retaliation by China may be far worse than one can predict. Their fear is embodied in the prospect of reduced U.S. exports, thus hurting U.S. production and jobs and also higher consumer prices. From an economic perspective, levied tariffs only add unnecessary costs to an economic system; they reduce output and market efficiency. By taxing Chinese steel and aluminum with the goal of pricing it out of the market, it removes a formerly cost-effective offer in the marketplace and reduces supply available to businesses. This sort of predicament can raise input prices and thus lead to inflation.
Senators such as Susan Collins of Maine are pleased to see unfair Chinese trade practices addressed, but acknowledge the amount of risk associated in starting a trade war with an economic superpower.
Director of the National Economic Council Larry Kudlow has reportedly characterized the prospective trade war with China as a high-risk, high-reward situation. Although tensions continue to build a week since from the tariff announcement, Kudlow believes Trump can reap high rewards despite detrimental economic risk.

Editor’s Note: Information from The Washington Post, The Wall Street Journal and The New York Times was used in this report.