Bloomberg News
‎— With assistance by Xiaoqing Pi, Yinan Zhao, Miao Han, Andrew Mayeda, Jennifer Jacobs, Dandan Li, Elizabeth Konstantinova, Slav Okov, and James Mayger

After months of rhetoric, a 25 percent levy on $34 billion of Chinese goods entering the U.S. took effect just after midnight Washington time on Friday with farming plows and airplane parts among the products targeted. China hit back immediately via duties on U.S. shipments including soybeans and automobiles.

Neither side shows any signs of backing down. Trump is already eyeing another $16 billion of Chinese goods, and he indicated to reporters Thursday on Air Force One that the final tariff total could exceed $500 billion, almost the same amount that the U.S. imported in 2017. China’s Commerce Ministry accused the U.S. of “bullying” and igniting “the largest trade war in economic history.”

The first ever U.S. tariffs aimed just at China will likely rally Trump’s voters who agree with his “America First” argument that Beijing hasn’t played fair for years, stealing America’s intellectual property and undercutting its manufacturers.

But the risk is that a spiraling conflict undermines economic growth by gumming up international supply chains and inflicting higher prices on companies and consumers. The Federal Reserve has already noted some firms are slowing investment, while Harley-Davidson Inc. and General Motors Co. are warning they may cut jobs.
Given the moves were widely telegraphed, financial markets took them in stride. U.S. stocks rose and the dollar extended losses. Treasuries gained and gold declined as investors assessed the impact of the escalation in the trade rift.
Hours after the tariffs, the U.S. released jobs figures that showed few signs of any early pressures on employment from the trade tension. U.S. hiring topped forecasts in June, while the unemployment rate rose from an 18-year low and wage gains unexpectedly slowed.
The June jobs data show no evidence of trade fears hurting the U.S. economy, Council of Economic Advisers Chairman Kevin Hassett said in an interview on Bloomberg TV on Friday.
“There isn’t clear evidence in the data that the anxiety over trade is being harmful to the industries that we would most watch for harm in,” Hassett said.
The extent of the economic damage will depend on how far both sides go. If the U.S. and China cool off after a first round of tariffs, the fallout will be modest, according to Bloomberg Economics.
Under a full-blown trade war in which the U.S. slaps 10 percent tariffs on all other countries and they respond, the economists reckon U.S. growth would slow by 0.8 percentage point by 2020. Trump has already imposed duties on foreign steel and aluminum imports, drawing a response from the European Union and Canada which fret he may go after automakers next.
“Our view is that trade war is never a solution,” Chinese Premier Li Keqiang told reporters during a trip to Bulgaria. “No one will emerge as a winner from trade war, it benefits no one.”