Just after midnight, US president Trump boosted tariffs on $200 billion in Chinese imports, even as trade talks continued in Washington. Those discussions accomplished little, and Trump threatened tariffs on the other $325 billion of stuff the US imports from China if negotiations don’t bear fruit in a few weeks. Stocks dropped somewhat, thanks partly to some confusing presidential tweets, but recovered after negotiators on both sides made optimistic noises.

The market’s boundless optimism may be misplaced, though, as  neither Trump nor China seem to mind escalating their conflict. Tariffs are probably a short-term political boost for Trump, which may be why he says he’s in “no rush” for a settlement. But tariffs will hammer the US economy too. Most companies have prepared for the higher tariffs Trump imposed last night, but not a full-scale trade war, which would noticeably raise costs for companies and consumers.

Trump may think higher tariffs will break China’s resolve, but this analysis is most probably wrong in several ways. Even the most comprehensive agreement will be impossible to enforce, leading to more tension and more destructive tariffs. According to some, a far better approach to changing China’s behavior would be to team up with the rest of the world –which seems to share Trump’s complaints about China– to apply steady pressure on the practices that make it such a powerhouse.

In a series of tweets, Mr Trump said China had "taken so advantage of the US for so many years". "Therefore, China should not retaliate - will only get worse!" he added. Trump said US consumers could avoid the tariffs by buying the same products from other sources.

"Many tariffed companies will be leaving China for Vietnam and other such countries in Asia. That's why China wants to make a deal so badly!" he said.

Source: bloomberg.com