The severity cannot be overstated, if an additional 50% tariffs are levied on all Chinese goods it will decimate trade between the world’s two biggest economies.
Remember, 50% would sit on top of what is already on the table: 34% announced last week, 20% announced at the start of US President Donald Trump’s term, and some additional tariffs left over from his first term in office.
In total, it means all Chinese goods would face tariffs of over 100%, some as high as 120%.
It’s a price that makes any trade almost impossible.
China is really the only nation in the world at the moment that is choosing to take a stand.
While others are publicly making concessions and sending delegations to negotiate, China has clearly calculated that not being seen to be bullied is worth the cost that retaliation will bring.
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The real question, though, is if the US does indeed impose this extra 50% tomorrow, what could or would China do next?
It has said it will “fight to the end”, but what does that mean?
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In reality, there are few good options.
There are some obvious measures that China will almost certainly enact.
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Further export controls on rare earth minerals (crucial for the development of high-tech products) are one example. China controls a huge proportion of the world’s supply, but the US would likely find workarounds in time.
Hiking tariffs on high-impact US products such as agricultural goods is another option, but there is only so far this could go.
The potentially more impactful options have significant drawbacks for Beijing.
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It could, for instance, target high-profile American companies such as Apple and Tesla, but this isn’t ideal at a time when China is trying to attract more foreign investment, and some devaluation of the currency is possible, but it would also come with adverse effects.
Other options are more political and come with the risk of escalation beyond the economic arena.
In an opinion piece this morning, the editor of Xinhua, China’s state news agency, speculated that China could cease all cooperation with the US on the war against fentanyl.
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This has been a major political issue for Mr Trump, and it’s hard to see it would not constitute some sort of red line for him.
Other options touted include banning the import of American films, or perhaps calling for the Chinese public to boycott all American products.
Anything like this comes with a sense that the world’s two most powerful superpowers might be teetering on the edge of not just a total economic decoupling, but cultural separation too.
There is understandably serious nervousness about how that could spiral and the precedent it sets.
