Trump imposes more tariffs: Analysing the US and China trade war

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Donald Trump

In what seems to be another clash of heads between the US and China, President Donald Trump has followed through with threats of more tariffs against China implementing a 25% tax on a second wave of goods worth $16bn (£12.4bn), affecting motorcycles and aerials amongst others.

In retaliation, China has imposed taxes on the same value of US products.

Meanwhile, America have threatened that there will be a third round of goods taxed in the future.

How did this start?

This move ramps up the argument Trump started, since his inauguration in 2016, making the assertion that China, along with other countries, have been taking advantage of US companies by selling their goods too cheaply.

President Trump believes that adding taxes to Chinese products entering America, will aid companies creating goods within the US, with their goods becoming cheaper by comparison.

Whereas, in China, low production costs and a weak currency keep prices competitive, with this attributing to the statistic that imports into the US from China far exceeds exports from the Asian country to the US.

What are the consequences?

Dr Tony Syme, expert in macroeconomics and international finance at the University of Salford Business School, comments: “Virtually all economists agree that restricting trade has damaging economic consequences for all countries that employ such policies, but the scale and the scope of the losses are potentially huge, not just for the U.S. and China, but also for countries not directly involved.

“Economists have used a computable general equilibrium (CGE) model to look a range of scenarios. The prediction is that, with the initial tariffs on $50bn of goods from both sides, the impact across the U.S. economy as a whole, net employment will fall by 134,000.

“One benefit of employing a CGE model is that it can model the effects of tariffs upon supply chains and this is crucial in regard to China, who have been termed the ‘Great Assembler’.

“A well-known example of this is the iPhone. Manufacturing iPhones involves nine companies, located across South Korea, Japan, Germany and the U.S., and these companies ship the iPhone components to a company located in China, for assembly into final products and then exported to the US and the rest of the world. China is designated the exporter of a high-tech product, but that product was overwhelmingly made elsewhere.”

China has gone on record blaming the US and accusing it of “unilaterally” heightening tensions between the two economic giants and it is without doubt that the main difference between the two countries, is that Chinese goods are very widely bought in the US indeed, as they are in the rest of the world, whereas the same cannot be said for the US, heightening the reason why China is sometimes called the world’s workshop.

On the escalation of the trading war between the US and China – Alex Hersham CEO of Zencargo adds: “As we witness the latest salvo in the looming trade dispute with the China and the US, exporters worldwide stand to lose vital export revenue.

“Pending an analysis of the actual effects of the tariffs on both countries, companies with cross-border interests are bracing for the worst. An all-out trade war could be devastating for shipping lines, who are lumbered with new carriers they cannot fill, slackening demand and oil prices at a four-year high.

“This could continue a period of consolidation in the shipping industry that has already seen Hapag-Lloyd merge with UASC and the creation of the ONE shipping line out of Japan. Shipping lines will come out fighting to address problems of overcapacity and struggling demand, but we could see some major changes along the way.”

The ripple effect

Although President Trump states his moves are aimed at protecting US industry and business, dozens of US companies and industry groups have stated that their businesses are being harmed.

Furthermore, the worry is that companies will be affected outside of the US as major carmakers recently warned that changes to trade policies were hurting performance.

Dr Syme added: “President Trump needs to be very careful when considering whether or not to carry out his threat to escalate this trade war with China.

“While the full effect may not be felt until after the mid-term elections, it is predicted to have a very large negative effect with hundreds of thousands of jobs lost in U.S. agriculture and services.

“There may be short-term political gains, but this is an economic game with very few winners.”

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