Trump's tariff hike menaces strong economy

WASHINGTON -- What trade war?

For months, the U.S. economy has shrugged and chugged along as America and China slapped tariffs on tens of billions of dollars of each other's goods in the fiercest trade fight since the 1930s.

Growth was steady. The unemployment rate dropped to 3.6%, a 50-year low. Stocks soared to record levels.

But President Donald Trump's decision to hike import taxes on $200 billion worth of Chinese imports from 10% to 25% could upend all that.

"A game changer," Steven Cochrane, chief Asia-Pacific economist at Moody's Analytics, said of the tariffs slated to take effect at 12:01 a.m. Friday. He called the move a "worst-case scenario" after one year will slash 1.8 percentage points from U.S. economic growth, which was a healthy 2.9% last year. (And it could get even worse. Trump has threatened to extend 25% tariffs to another $325 billion in Chinese imports, covering everything China ships to the United States.)

Other economists saw milder consequences.

"The new tariffs will drive up prices on a broad range of American goods, although the overall impact on growth and inflation is likely to be modest," said Eswar Prasad, an economist at Cornell University. That's because the United States, with a huge domestic market, is far less dependent on trade than most countries.

"A bigger concern is that the escalation of the trade war will dampen business sentiment, which in turn would negatively affect investment and long-term growth," Prasad said.

Whatever pain there is won't be distributed evenly.

Companies depending on imports from China are especially vulnerable.

In Clearwater, Florida, the information technology company Source 1 Solutions is bracing to pay more for electronic components from China, and may have to take on more debt to cover the rising costs. "Every month we get hit with tariff money, we have to pay out," said Robert Hessel, who owns Source 1 Solutions. "Tariffs aren't good for the small businesses that are trying to do what we're doing, importing equipment."

Other tech companies are also likely to feel the squeeze.

These include Apple, which manufactures its flagship iPhone in China, as well as tiny startups just bringing new products to market and mid-size companies absorbing the existing tariffs even as they compete with Chinese rivals. Tim Bajarin, president of consultancy Creative Strategies and a longtime Apple expert, said companies have two choices: Eat the cost of the tariffs and absorb a hit to profits -- or raise their prices and risk scaring off customers.

"There are no other options," he said. "The companies are being used as a bargaining chip."