Happy Birthday Trade War
Soon all U.S.-China bilateral trade could face higher import duties, then how will the two sides attack each other?
The U.S.-China trade war is about to be one year old. The tariffs started in January against many nations, but the escalation between the United States and China occurred July 6, 2018. Now one year later, both sides appear to be doubling down.
In the last few weeks, Chinese rhetoric has shifted. China is preparing for a long trade war, no longer optimistic that a swift conclusion is possible. On the other side of the Pacific Ocean, Trump has announced a second package to compensate farmers for lost sales to China. The total aid for farmers is $28 billion. Chinese President Xi Jinping is allowing anti-American and anti-Trump rhetoric to go viral on Chinese social media and Trump is blaming China for the breakdown in talks. Both economies are showing signs of wear from the trade war, but the trade war has not broken either economy yet. The leaders aren’t showing any weakness, nor is there any desperation for a deal. Instead, both leaders are trying to gather political support for the trade war and hunkering down for the impending storm.
The United States is reviewing a final tranche of tariffs that would result in taxes on all goods imported from China. China has already imposed duties on everything it is willing to tax coming from the United States. Now that there are no new places to put duties the attacks have gotten more creative. And not for the better.
Individual companies are being targeted. The United States has taken actions that are aimed at Huawei, China’s giant telecoms company. Then China targeted FedEx because the company lost important Huawei documents. Both countries have tools at their disposal to continue attacked companies, which terrifies the international business community.
There is also a concern that China will stop selling the United States rare earth metals, which are needed to make high tech-products from T.V.s to drones. Others have suggested that China will sell U.S. Treasury bonds which would seriously impact the value of the U.S. dollar. These are some of the options that President Xi Jinping is concerning.
Today I read Grant Nordy’s article — and saw that China had another tariff trick up its sleeve. China is lowering the import duty for non-U.S. origin products that it typically purchases from the United States. This will prevent shortages of products Chinese people need and keep prices down, but maybe most importantly, it builds trading relationships with other countries. The effect is that even if the trade war ends next week, it is possible that Americans will lose those customers forever.
Later this month, Presidents Xi and Trump are meeting in Japan for the next G20 meeting. At the last meeting, the two sides agreed to a trade truce that lasted for almost six months. Tensions are higher now, but maybe they can overcome politics and reach an agreement or at least restart the talks.
This is adapted from The Demise of Free Trade: The U.S.-China Trade War Explained, by Michelle Klieger.