A China vs US trade war may be underway as the two countries officially imposed sanctions on each other Friday morning. China has called the US move illegal and “the largest trade war in history.”
China vs US Trade War: The Tariffs
The US has levied a 25% tariff on $34 billion of Chinese goods. China instantly responded with similar levies. The US tariffs went into effect at 12:01am on Friday EST. Minutes later, China announced their retaliatory measures. The US will also levy duties on another $16 billion of Chinese goods in the coming weeks, for a total of $50 billion.
Morningstar Investment Conference: Using Annuities In A Portfolio For Added Stability
President Donald Trump explained to reporters on Air Force One Thursday, “You have another 16 (billion dollars) in two weeks, and then, as you know, we have $200bn in abeyance and then after the $200bn, we have $300bn in abeyance. Ok? So we have 50 plus 200 plus almost 300.”
The tariffs fulfill one of President Trump’s major campaign promises. While on the campaign trail, he often spoke of China’s unfair trade practices, currency devaluation, and intellectual property theft.
A spokesperson for China’s Ministry of Commerce said, “China promised not to fire the first shot, but in order to safeguard the country’s core interests as well as that of the people, it is forced to fight back.” A spokesperson for the Ministry said earlier this week the US is “opening fire on the whole world and also opening fire on itself.”
One state run newspaper, the Global Times, write on Friday, “If what the US wants is to escalate a trade war with China, then so be it. A little fighting may be the only way the Trump administration clears its mind and allows everyone to sober up.” One article on China Daily read, “The Trump administration is behaving like a gang of hoodlums with its shakedown of other countries, particularly China.”
China has also claimed the move actually violated international law. In a statement issued Friday, the Ministry of Commerce said the US “violated [World Trade Organization] rules and launched the largest trade war in economic history to date.”
The Chinese government has been publishing editorials ensuring they are ready for a China vs US trade war and criticising the American actions. Economists in China have been assuring the country the trade war will have a very minimal impact on the economy, citing the fact that exports to the US only account for 19% of overall exports. Many have also pointed out that Chinese consumption now accounts for half of China’s GDP. China’s central bank echoed these statements saying, “overall impact would be limited.”
Will a Trade War Impact the US?
Many international analysts have also agreed that the tariffs won’t greatly impact the Chinese economy. Investment strategist Andy Rothman wrote this week, “The reciprocal tariffs on US$50bn of goods in both directions will have minimal impact in China.” He pointed out that instead, China’s reciprocal tariffs will hit Trump’s base hard and hurt the Republican party in the midterm elections this coming November. “The impact on the US political environment is, however, likely to be far greater,” he wrote.
Beijing-based attorney James Zimmerman told NPR, “What we can expect is disruption in supply chains. We can expect job losses and a decline in investor and consumer confidence. And that’s going to impact the stock market. And the impact on U.S. business, in my estimation, will be substantial.”
Although some argue the US will suffer more in the trade war, Mary Lovely, an economics professor at Syracuse University, claims US consumers won’t necessarily see the impacts on their wallets, at least not any time soon. He explains that 60 percent of US-China trade does not involve final products, but rather parts. As such, it will be American companies and manufacturers that will feel the sting of the China vs US trade war.
Chinese Business Concerns
Despite the reassurance from state run media and government entities that the China vs US trade war will have a minimal impact, Chinese businesses and investors are still concerned. The Shanghai Composite index reached a two year low this week.
A representative of Sanhua Micro-Channel, a company that makes air conditioning components said, “One of the biggest competitive advantages of Chinese exports is their low price. After tariffs are imposed, prices for Chinese made goods will rise and we’ll lose our comparative advantage.”
Sanhua Micro-Channel said they have already moved some of their production to the US and Mexico and may move more in the future. Other companies have said they would be turning their focus to Chinese consumers, rather than those abroad. A spokesperson for furniture manufacturer Topsun, indicated they would be changing their focus more towards China, “China is a big market for us. If we can seize our own market, we will be less affected by the trade war.”
China’s tariffs on American agricultural goods is also expected to have an economic impact. Prices on US fruit are expected to rise as much as 50% in Beijing. One fruit seller, although concerned for his business, understood where the Trump administration is coming from. He said, “Americans want to earn more money so they started a trade war. I can understand that. Who doesn’t want to earn more money?”
Some analysts have pointed out that the tariffs could hurt China’s growing high-tech industry. Cheng Dawei, a Beijing based international trade expert said, “In the short run, China will be affected badly… But the tariffs will bring double-lose results. China is never the only side to suffer,” she said.
She went on to say, “Imposing high tariffs definitely hurts China badly, but we will not be beaten down.”
But what about all of the goods from the US on their way to China right now. One report claims a ship carrying 70,000 tons of soybeans from American farmers was racing to beat the clock and make it to a Chinese port before the clock struck midnight in the US. In other cases, some Chinese ports have stopped clearing goods from the US entirely as they await instructions from the central government.