Chinese Tariffs Pave Way for a Destructive Trade War
In the continuing work of economic attrition between two of the world’s greatest superpowers, China has recently announced the levying of new tariffs on over 100 North American products – including certain cars, chemicals, and the ever-popular soy. This announcement, which first came from the global superpower in the East, came in the early days of April 2018; they are expected to be in response to the standing president’s – Pres. Donald Trump – continuing proclamations that China and the US have been thus far engaging in one-sided trade deals.
Details of the Trade Volley
Although China’s Ministry of Commerce hasn’t actually stated the start date for the new initiative, they did estimate that the tariffs would affect about $50 billion worth of American imports and exports annually. Of particular note in the 106 targeted products is American sorghum; there will be a 179% tariff on the screen used in livestock feed. In fact, China implemented this earlier in the month of April, which resulted in the halting of cargo ships carrying containers of sorghum at Qingdao ports.
Other tariffs that have been imposed our 25% levy on new-energy automobiles, whiskey, and soybeans – most of which reach China by way of US imports. For a complete list of the affected products, visit the website of CNBC here. In some, then:
- A 25% tariff on a wide range of products such as vehicles, whiskey and soybeans
- The tariffs are reputed to be in response to President Donald Trump’s own trade tariffs on Chinese imports, in an attempt to balance the current trade interaction between the U.S. and China
- The total estimated effect of China’s tariffs on the American economy is about $50 billion annually; as released by China’s Ministry of Commerce
The Projected Effect of this Trade Showdown
Analysts say that China’s move is directly linked to president Donald Trump’s recent unveiling of a plan to target Chinese imports in an effort to reverse what he has expressed multiple times as one-sided trade practices by the Eastern giant. The American tariff plan is expensive – although it it clearly tends to cover technology more than other areas:
- communication technology
- information technology
- X-ray machine equipment
- medical syringes
- hearing aids
- artificial teeth
- malaria test kits
- educational material like book-binding equipment, etc
More generally, the U.S. Trade Representative has stated that, despite the sheer number of items on the tariff list (around 1300 Chinese imports), all of the products were chosen to have a negative impact on China’s industrial plans while minimizing the effect of increased costs to the American economy. The public fears of an impending trade war between the United States and China are growing more reasonable, given China’s recent response.
The Effect of Tariffs on the Stock Market
The stock market is not been free from being influenced by the trade war speculation; in fact, Peter Oppenheimer – the chief global equity strategist of Goldman Sachs has stated that he thinks “it is clearly a trade battle at the very least.” This decidedly pessimistic outlook suggests that a transition into a far-reaching trade war is probably inevitable.
As perhaps a sign of things to come the Dow Jones stock market average to a 450 point dive the same day that China retaliated with their own list of American products that they’re using for economic leverage. In particular, companies such as Caterpillar and Boeing – purveyors of some of the items on the tariff-restricted list – saw their biggest losses in stock price.
One thing is clear, however, and that is China is starkly unwilling starkly unwilling to be bullied by its longtime trade partner and U.S. because of the 1 1/2 billion population strong nation’s position in the global economy, the effects of the recent trade battle has spread even to European stocks – the pan-European Stoxx 600 endured a significant drop-off in stock values once the news broke.
The Reason for the Tariff
There are several reasons for the recent tug-of-war as concerns trade lately. One of the more important ones is an allegation coming directly from the Trump administration: China is effectively stolen United States intellectual property. This isn’t a new allegation, but president Donald Trump has been the first to actively pursue it. Although nothing is yet written in stone, the terrorists could cause the Chinese economy between $50 billion and $60 billion annually. This tally is a calculated cost; in that it is the alleged amount of money lost by the alleged pilfering of US intellectual technology.
Although there is concern that this recent policy by by the Trump administration might raise the prices of common consumer goods, the expectation is that it will hit the Chinese economy significantly more. One prominence partially-dissenting voice is that of the vice president of the US Chamber of Commerce – Myron Brilliant. He is on record stating that, although the US is correct regarding China’s unfair trade policies, he, in his professional capacity, thinks that the response is suboptimal. The increase in taxes on common goods used by American consumers, as a result of the tariffs on Chinese imports, will do unnecessary damage to the wallet of the average citizen.
The Situation with China Today
Unfortunately, it looks like both sides are wrapping up for the impending trade war – if China’s rhetoric is to be believed. President Trump’s tariffs provide them with a reason to cast their response as an inevitable position against foreign aggression; thereby removing the spotlight from their own transgressions as concerns intellectual property rights.
It has long been shown that Chinese businesses improperly use software and patents from American firms in multiple tech trade deals. In fact, after the damning results of a months long investigation by the Office of the United States Trade Representative, the Trump administration imposed a 10% tariff on imported aluminum, and a larger 25% tariff on imported steel. Of course, these tears extend to other countries – but everyone understands that it is clearly meant to target the largest exporter in China.