On May 5, 2019, President Trump tweeted that trade negotiations were going “too slowly” and that China was attempting to “renegotiate” previous trade commitments. He then ordered the tariff hikes under the third Section 301 tranche be raised from 10% to 25% and for the USTR to begin the process of increasing tariffs by 25% on nearly all remaining U.S. imports from China, valued at $300 billion. On May 13, China announced it would increase tariffs on many of the products on its retaliatory third tranche. China contends that trade talks have broken down because the United States has “persisted with exorbitant demands,” including on issues concerning China’s “sovereign affairs.” A protracted and expanding U.S.-China trade conflict could sharply reduce bilateral commercial ties, disrupt international supply chains, and diminish global economic growth. Data for the first quarter of 2019 show that U.S. exports to, and imports from, China, dropped by 19.6% and 13.9%, respectively, year-over-year. Many economists warn that imposing tariffs on nearly all products from China could be costly to U.S. consumers and firms that depend on trade with China. In addition, China could further retaliate by curbing operations of U.S.-invested firms in China, reducing its holdings of U.S. Treasury securities, and curtailing rare earth material exports to the United States. A study by the Organization for Economic Cooperation and Development estimated that current and threatened U.S.-China tariff hikes could reduce U.S. and Chinese GDP by 0.9% and 1.1%, respectively, by 2021- 2022 (relative to its baseline).
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