By Quinlyn Manfull
Headlines are abound regarding a trade war between the United States and China. Last week, Trump announced $100 billion in new tariffs on Chinese products. The potential for a trade war has been looming for almost a year now, dating back to April 2017 when Trump launched an investigation into steel imports in order to bring manufacturing and jobs back to the US.
After another investigation (this time into China’s trade practices regarding Chinese theft of US intellectual property), a 30 percent tariff on solar panels and washing machines, 25percent on steel and 10 percent on aluminum, China finally struck back.
In April of 2018, Beijing imposed tariffs on US imports worth around $3 billion including a 15 percent duty on 120 American products such as fruits, nuts, wine and steel pipes and a 25 percent tax on eight others, including recycled aluminum and pork.
Beijing has said that its tariffs are a targeted response to the US trade measures against steel and aluminum. This began a back and forth between the two countries, as opposed to nearly a year of the US acting against China on its own.
Trump threatened a set of potential aerospace, machinery and medical industry tariffs just one day following China’s response. This was followed by another set of retaliatory tariffs from the Chinese government nearly mirroring the Trump administration’s proposal just a day earlier. These items aimed at pressure points in America’s democracy, including industries with extremely powerful lobbies, such as aircraft and soybeans, as well as products from politically volatile states, such as Wisconsin and Kentucky targeting cranberries and bourbon.
This battle is getting uglier and experts have predicted it to not be great for anyone involved. The US ships $130 billion worth of goods to China, while China exports $505 billion worth of goods to the US – this gives the US an upper hand insofar as they have a longer list of products to target if it wanted. But with recent extensions of power for Xi Jinping, China is in a stronger and more stable political situation than the US, possibly giving China more ability to stifle dissent while the US has to deal with midterm elections, lobbyists and the free press.
Fear over stock market crashes, huge price hikes on consumer items and loss of revenue for numerous industries has shaped media coverage of this issue.
Stocks plummeted at this time, but have surged back since then. Investors are trying to “weigh the possibility that this is simply a negotiating ploy on both sides,” said Sam Stovall, chief investment strategist at CFRA Research.
Even with the gains the Dow made on Monday, April 9, it remains more than 2,600 points below its all-time high of 26,616 on January 26.
In a tweet on Sunday, April 8, Trump said: “President Xi and I will always be friends, no matter what happens with our dispute on trade. China will take down its Trade Barriers because it is the right thing to do. Taxes will become Reciprocal & a deal will be made on Intellectual Property. Great future for both countries!”
Both countries’ lists are, for now, no more than threats. Over the next two months America’s list will be open for public consultation; China has said that it will wait for America to move. There is still a chance both sides will choose a deal over a trade war.
There is reason to believe that these methods will succeed. In 2003, when the European Union threatened to put tariffs on American products in retaliation for George W. Bush’s tariffs on European steel, Bush yielded. This game of chicken between two of the world’s largest economies hasn’t produced a solution yet, but so far, Xi appears to be betting that Trump will cave to political pressure before that happens.