Tensions have been rising between the US and China since Trump was elected, but now the trade war has officially begun, with Trump imposing 25% duties on $34 billion of imports from China. This is just the first in a possible series of increases that the American President says could affect up to $550 billion of Chinese goods.

The Trump administration intends the tariffs to curb China's development tactics in the tech sector, which Trump believes have been particularly aggressive; Trump has even gone so far as to accuse China of stealing or pressuring foreign companies to hand over technology. China has retaliated in kind, adding tariffs on US agricultural products. In calling on its vast army of farmers to expand soybean acreage and offering greater subsidies to growers, China is not only improving its own conditions, but also diversifying imports away from America. Beijing is the biggest buyer of US soybeans, importing approximately $14 billion last year - or about two-thirds of American farm exports to China. As part of the plan, China aims to add 1.6 million acres to its existing soybean acreage of 21 million.

What the outcome of the trade war will be depends on several factors. Given that unemployment has increased in the latest data release, a trade war would increase domestic prices for consumers and further mitigate their disposable income in a labor market that is anyway tightening. This, coupled with the rising strength of the dollar, could exert extreme upward pressure on inflationary forces and cause the economy to overheat.

Also, because the US is near what has conventionally been regarded as full employment, and given the stock market has shown in recent months that corrections may be in store, the eco-political arena does not need destabilizing shocks such as this. Changing things up at this moment carries significantly more risk of reversing the current progress than potential credit for maintaining that progress.

The worst part is that of the tariffs Trump imposed on China, an astounding 95% are either on intermediate goods or on capital goods like machinery that are also used in domestic production. This will exacerbate domestic cost-push inflation and perhaps impact aggregate supply.

It is also interesting to note that the US imports more from China than China does from the US: thus, it has some sort of an advantage in this trade war in terms of competitive exports and currency. In order to combat this, one should not rule out China potentially devaluing their currency to make exports more competitive.