Even before he was elected President of the United States, Donald Trump began sounding the alarm on what he alleged were unfair Chinese trade practices. Even as he was actively campaigning to win the Republican Party’s presidental nomination for president in 2016, Trump began issuing warnings that he had real issues with the way China was conducting itself in U.S. trade dealings. After once declaring that China’s trade practices were “the greatest theft in the history of the world,” Trump went on to win the presidency and decided it was time to take a stand. Since 2018, the U.S. has consequently found itself locked in a trade war with China that’s been playing out like a poker game with increasingly higher risks.
Trade war 101
In case you’re not up to speed on exactly what’s been happening, back in July of 2018, the U.S. government imposed a tariff on $34 billion worth of imported Chinese goods. This basically made it more expensive for U.S. businesses to buy certain retail products from China. Consequently, many of the businesses who continued to buy the tariffed products, in turn, raised the prices on them when they sold them in their stores. The whole idea was that by making Chinese goods more expensive in the U.S., businesses were less likely to buy and sell Chinese certain products in America.
Unfortunately, rather than saying “okay, okay, we’ll fix the problems you have with our trade practices,” China went the “two can play at that game” route. They responded by slapping their own tariffs on certain U.S. goods, effectively making them much harder to sell to a Chinese market. The U.S. responded by placing tariffs on even more Chinese goods and the whole cycle has more or less been repeating itself for almost a year now with neither side backing down.
The latest wave of tariffs came on May 10, 2019, when the U.S. increased tariffs from 10% to 25% on about $200 billion worth of Chinese import products. The U.S. Government is now threatening to apply the 25% tariff to all Chinese imports across the board.
How tariffs have taken their toll
The trade war has unfortunately not been without its effects on the U.S. economy. The stock market suffered a $1.1 trillion drop this month, as investors realized that the trade war is only likely to keep escalating. Consumers will also be left to cover the cost of rising goods as more Chinese imports are subjected to climbing prices. Economists at the New York Federal Reserve predict that the latest tariff hike alone will cost the average U.S. household $831 this year.
Then, of course, there are somewhere in the area of 455,000 jobs on the line for manufacturers who have come to rely on trade relations with China in the past. Considering that the tariffs are beginning to look more like a long term problem rather than short-term leverage, many Americans are pulling for the U.S. and Chinese governments to come to some sort of understanding as quickly as possible.
Is the trade war mountain really a molehill?
Despite all the negative effects caused by the trade war with China, not all experts are convinced that things are going to be all that bad, no matter how the trade war turns out. Brett Arends of Marketwatch, for instance, believes that the media hysteria over the government’s imposed tariffs has been blown totally out of proportion. “Even if China banned all imports from the U.S., that would amount to only 0.6% of our gross domestic product. And we’d sell the stuff somewhere else,” he argues. “Don’t buy the hysteria. President Trump is simply trying to pressure our biggest competitor to buy more American goods. That should be a good thing, even if you don’t like him.”
As Arends points out, China is only one of the many countries that the U.S. has traditionally enjoyed trade relations with. That said, a little hysteria can go a long way and the market may scramble for a while as U.S. businesses struggle to find new trade partners. For now, all we can do is wait to see how trade negotiations turn out and hope that ultimately everything will fall into place.