The State of Play on the US-China Trade War
By: International Council for Trade & Development
It is two years since Donald Trump announced in his presidential campaign that he would crack down on trade malpractices from China. This includes, dumping, intellectual property theft, and use of state-owned companies to overpower domestic businesses among other things. The first round of tariffs was launched by the US on July 6th, 2018 when they levied tariffs on 34 billion dollars’ worth of Chinese goods. This gesture was condemned by the Chinese Ministry of Foreign Affairs and the Chinese government has responded with their own tariffs as well. This series of back and fourth tariffs has gone on for some time and there seems to be no sign of ending. With that in mind, it would be a good idea to take stock in what has happened and what is going in the US-China trade war.
The State of Play:
The US and China have levied goods on sectors that they deem to be most damaging to one another. From the US perspective, this includes various agricultural goods, steel, aluminum, and consumer products such as toilet paper or washing machines. China has levied goods targeting the US auto, aircraft, and agricultural industry. The most notable products that have been targeted by China include Harley Davidson Motorcycles, Soy Beans, Pork, and other assorted agricultural products. As the US is reliant on agricultural products, many US farmers have seen their profit margins drop considerably since the first round of tariffs have been introduced. This has escalated to the point that the Trump administration has recently implemented increased subsidies for farmers in wake of these tariffs to keep public opinion at bay. This is especially important for Trump because Chinese tariffs have targeted industries that are based in “Red States” which are going to be pivotal for the Trump administration’s long-term survival in both he 2018 midterm elections and 2020 presidential elections.
On the Chinese side of things, the government has been holding its breath in suspense as they do not know what the U.S. is going to do next. The main damage from Trump tariffs has been on the Chinese stock market and the stability of the Yuan which are at record lows despite repeated interventions from the Chinese government during the trade war. The main strategy behind Trump’s tariffs is to capitalize on China’s export advantage and use it against them through tariffs. The logic behind this is that China has more exported goods than the US, therefore tariffs have a greater capacity of hurting China than the US.
As of September 23rd, both sides have discontinued trade talks on renegotiating terms and conditions regarding trade, intellectual property, etc. The subsequent tensions caused by the trade war has increased uncertainty among the global business community as they continue to muddle through and decipher how to do business in other countries. The resulting tensions from the trade war between China and the US have also had an indirect domino effect on other countries with the currencies of both Turkey and Argentina in a state of disarray now. Despite the tensions, neither the U.S. nor China have any incentive to hand each other concessions as domestic political circumstances would punish them for doing so.