Trade war soars

Trade war soars
US President Trump is considering 25% tariffs on $200bn of Chinese goods. This is more than double the 10% tariff that was initially planned. Trump’s protectionist trade policies seem to overlook the economic history of the country. The US Smoot-Hawley tariffs enacted in 1930 are thought to have inspired a trade war, leading to a massive decline in global trade..

US President Trump is considering 25% tariffs on $200bn of Chinese goods. This is more than double the 10% tariff that was initially planned.

Background

Trump has raised concerns about a full-blown trade war by targeting Chinese imports. After months of rhetorical exchanges between Washington and Beijing, the imposition of the new import taxes makes real a conflict that has rattled markets, scrambled corporate supply networks and chilled business investment.

Last month, the White House announced plans to stick 25% tariffs on 1100 Chinese goods. China was not happy about this, and Beijing has vowed to retaliate with the same value: 25% tariffs on US products worth $34 billion per year. Each side has threatened further tariffs on the other and tensions continue to escalate, sparking fears of an all-out ongoing global trade war

China on 11th July vowed to take “countermeasures” after the United States announced 10% tariffs on an extra US$200 billion worth of Chinese imports.  The proposed US duties on $200 billion worth of Chinese imports could take effect after public consultations end on August 30. Last month, US President Trump said he is ready to intensify his trade war with China by slapping tariffs on all $500bn of imports from the country. 

 

President Trump has instructed his top trade representative to consider imposing a 25% tariff on $200 billion in Chinese imports, a much stiffer penalty than previously proposed. However, China has already warned it would retaliate if the US went ahead with the plan, accusing Washington of blackmail." If the US side takes steps to further escalate the situation, we will definitely take countermeasures to resolutely safeguard our legitimate and legal rights and interests," said foreign ministry spokesperson Geng Shuang on Wednesday. 

Currently, the White House is soliciting public feedback on the proposal, and the new tariffs would not go into effect immediately. The senior administration officials said that the 10% and 25% tariff levels are under consideration and that a final decision has not yet been made, but they indicated that the White House felt drastic action was needed to force changes from China’s government. 

US Trade Representative Robert Lighthizer said, "The increase in the possible rate of the additional duty is intended to provide the administration with additional options to encourage China to change its harmful policies and behaviour and adopt policies that will lead to fairer markets and prosperity for all of our citizens." Senator Marco Rubio, a Republican from Florida, tweeted "the only way to remove barriers is to demonstrate to [China] our willingness to retaliate with barriers". 

The tit for tat trade war has taken a new turn with China opening a new front with a currency war. Analysts say that if China’s leaders really are weaponizing the yuan, they are following a high-risk strategy, both for China and the rest of Asia. Over the past three months, the yuan has depreciated by around 7.7 % in value against the US dollar. President Trump and the US government believe that weakening of the Chinese currency gives Beijing an unfair advantage in the trade war. While deliberately devaluing the yuan might negate the effect of US tariffs, it would be a dangerous course of action.

President Trump is under growing pressure from business groups and Republicans in Congress to show he’s making progress in the multiple trade spats he has opened up with numerous countries. However, so far Congress has done little to intervene with Trump’s approach. Labour groups have remained mostly split on Trump’s approach with China, with some backing his push to create more U.S. jobs but others worried about whether he has mapped out an endgame and has a plan to resolve tensions. 

Counterpoint 

Cal Dooley, chief executive of the American Chemistry Council, predicted that the 25 % tariffs would be “devastating for U.S. chemicals manufacturers.”

Other groups condemned the idea, saying the taxes would ultimately raise costs for US households and businesses. "China's trade abuses need to be addressed, but tariffs are not the answer," the National Retail Federation said. 

Assessment

Our assessment is that US assumptions of high stakes forcing China to make concessions is a very risky move as it might backfire on the US economy. These punitive tariffs might be passed along to the U.S. consumers and will undo all the positive gains the economy has made in recent months. We feel US’s persistent decision to turn to tariffs instead of negotiation is undermining the international trade rules. We believe that even though in sheer dollar volume China won’t be able to come close to the US in a tit-for-tat battle there are multiple other subtle measures it will take. 

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