US President Donald Trump announced Monday, September 17, that he would impose new tariffs on $200 billion worth of Chinese goods. The country said it would retaliate quickly, kicking the trade war into high gear. That reports Business Insider.
Trump is annoyed by the trade deficit of the United States (US) and China. He says the country is misusing American intellectual property for its own gain. Since China exports goods to the US for a much greater amount than vice versa, Trump can do the 'back-and-forth with import tariffs' last longer than Chinese President Xi Jinping.
The US imported about $505 billion of potentially taxable products from China, while exports to China amounted to approximately $130 billion. The trade deficit is therefore $375 billion (annual basis), an amount that has increased in recent years has increased nicely.
Few reactions in the market
Trump wants the trade deficit to be cut by about $2020 billion by 200. From Monday September 24, the US will apply import tariffs of 10% for the newly designated Chinese products. In 2019, that will rise to 25%, if China makes no concessions in the field of trade and intellectual property.
Officially, this gives American companies more time to adjust the supply. However, analysts and investors see cause for optimism in this delayed rise in rates. It gives the bickering countries more time to reach an agreement and end the trade war.
There is also the idea that Trump deliberately set the start date of the highest import tariff after the important congressional elections has laid. He can still make a good impression with his tough measures until November 6. After that, he may be able to cancel the 25% rate, in order to prevent escalation and economic damage.
The stock markets are hardly reacting (yet) to the new battle in the trade war. In the USA, China en Europe There was no sign of any panic reaction on Tuesday, September 18.
How much is still to be collected?
Until now, both countries had designated $50 billion worth of goods for additional import tariffs. The new tariffs will bring the US to $250 billion worth of affected Chinese goods. China is reportedly responding with tariffs on $60 billion worth of U.S. goods and will thus reach $110 billion.
President Trump's counter-reaction is in principle already known. "Should China retaliate after Monday's tariffs, we will immediately proceed to Phase 3, where we will impose tariffs on an additional $267 billion worth of goods," he said. the US president.
In that case, all American imports of Chinese goods would be affected by the trade war. What can the Chinese do in return?
Conventional and Unconventional Options
Given that about $130 billion of total imports (of about $110 billion) is already at risk of being affected by Chinese import duties, China's conventional option is not much more. Xi Jinping could tax an additional $20 billion worth of US products.
In that sense, the trade war is automatically won by the country with the largest trade deficit, which now stands at a staggering $375 billion for the United States.
The Chinese own a large part of the US government debt
However, China can also lash out in other ways. For example, there is still a major imbalance between the 2 countries: China is the largest international creditor of the US. Sun $1.000 billion of US debt is in the hands of the Chinese.
If China puts that debt back on the market, or even suggests that it will stop buying US bonds, US interest rates will go up and the value of the bonds will rise. down to go.
China could hit Apple
Higher interest rates would make US borrowing more expensive, which could hurt the economy. The downside for the Chinese: in addition to the decreasing value of their remaining debt securities, the dollar would also become cheaper. Then Chinese products in the US will automatically become more expensive, which would not be bad for Trump.
The other unconventional option has to do with the fact that there are many US companies operating in China. The government can really hinder those companies, if it feels like it. The iPhones that Apple makes in China could be classified as a 'threat to national security'. Factories could be closed because of minor offenses.
China can make the lives of American companies impossible by ceasing partnerships or by disrupting production with frequent security checks.
When 2 dogs fight…
In the long run, Trump and Xi could do significant harm to each other's, as well as their own, economies. Import tariffs on both sides are driving higher consumer prices and purchase prices for manufacturers. They see their profit margins evaporate or are forced to raise their prices.
Perhaps there are not only losers. “The trade war between the US and China offers opportunities to advance European interests,” Gabriel Felbermayr, director of the ifo Center for International Economics, said in a press release. "Hopefully Trump is done attacking all of his trading partners. As long as the trade war between Washington and Beijing continues, Europe is relatively safe."
Read more on Business Insider:
- UK government wants to help EU citizens in alphabetical order
- EU fears wiretapping by British spies
- Brits want final word on Brexit deal
© DCA Market Intelligence. This market information is subject to copyright. It is not permitted to reproduce, distribute, disseminate or make the content available to third parties for compensation, in any form, without the express written permission of DCA Market Intelligence.
