The Troubles of Trump’s Tariffs

By: Param Kapoor

It is no secret that President Donald Trump is fueling tensions by continuously raising tariff rates on items imported from America’s biggest trade partner turned adversary: China.

Last July, Trump followed through on months of threats to impose sweeping tariffs on China for its alleged “unfair trade practices”. So far, the US has already slapped tariffs on US $250 billion worth of Chinese products and has threatened tariffs on US $325 billion more.

With neither Trump nor Chinese President Xi Jinping willing to back down, US-China trade tensions could erupt into a full-blown trade war, with China’s own Ministry of Commerce warning that the dispute may even lead to “the largest [trade war] in economic history to date”.

To understand the brevity of the situation, it is important to know some key terms.

A trade war is when countries try to attack each other’s trade with taxes and quotas, by implementing or raising tariffs, causing the other to respond, in a tit-for-tat escalation, hurting other supporting nations’ economies and can lead to rising political tensions.

A tariff is a tax on a product made abroad. In theory, taxing items coming into the country means people are less likely to buy them as they become more expensive, with the intention being that citizens buy cheaper local products instead – boosting that country’s economy.

Trump has made his economic policies clear, referring to it as “Smart Trade, Not Stupid Trade”

Essentially, his policies promote mercantilism through the use of protectionism to defend U.S. industries from foreign competition. His goal is to reduce the U.S. trade deficit, with the hopes of increasing military spending. The Trump administration claims the US relies too much on other countries for its metals, and that it couldn’t make enough weapons or vehicles using its own industry if a war broke out. Yet, a global trade war could hurt consumers around the world by making it harder for all companies to operate, forcing them to push higher prices onto their customers.

Prior to his presidency, Donald Trump criticized Chinese trade practices, tweeting on September 21, 2011, “China is neither an ally or a friend — they want to beat us and own our country.”

After his inauguration,  President Trump sat with President Xi Jinping to chalk out a deal, resulting in US and China agreeing to a trade deal that would give US firms greater access to China’s agriculture, energy, and financial markets, while China gains access to sell cooked poultry to the US on May 22, 2017.

However, just under a year later, on April 2, 2018, China imposed tariffs, ranging 15-25 percent on 128 products (worth US $3 billion) including fruit, wine, steel pipes, pork and recycled aluminum in retaliation to the US’ steel and aluminum tariffs, which were placed a few weeks earlier on March 23, 2018, with the US imposing a 25 percent tariff on all steel imports, except from Argentina, Australia, Brazil, and South Korea, and a 10 percent tariff on all aluminum imports, except from Argentina and Australia.

Just recently, on May 10, 2019, the US increased tariff rates from 10 percent to 25 percent on US $200 billion worth of Chinese goods from 10 percent to 25 percent, as the US and China fail to strike a deal regarding trade negotiations.

Increasing tensions have taken their toll on many domestic industries that rely on foreign manufacturing, with two of the biggest being footwear and technology, hitting brands like Nike, Adidas, Apple, and Google.

  • Footwear – Trump raised tariffs from 10% to 25% on $200 billion in Chinese imports. If Trump ultimately moves forward with the hikes, which would impact footwear, both companies and consumers would be hit hard. According to the Footwear Distributors and Retailers of America (FDRA), retail price increases could be “staggering.”
  • Technology – US hardware companies are deeply reliant on trans-Pacific trade, but, so far, tariffs have avoided assembled computers and smartphones, focusing instead on unbundled components likely to have less effect on consumers – until now. Now, an increase in tariffs will almost certainly result in increased prices of all forms of technology, ranging from smartphones to TVs to printers.

Perhaps one of the biggest outcomes to occur thus far was the federal mandate that effectively banned Chinese technology giant Huawei from doing business in the US on May 16, 2019, a move that comes amid growing tensions with Chinese telecommunications companies.

Lawmakers and intelligence officials have claimed the telecommunications giant could be exploited by the Chinese government for espionage, presenting a potentially grave national security risk, with concerns about Huawei having more to do with cell towers than cellphones.

Huawei is one of the main suppliers for network infrastructure, the hardware that phones connect to, alongside Ericsson and Qualcomm. As carriers raced to build out 5G networks, lawmakers rushed to keep Huawei hardware out of whatever was being built. Cell networks are a very tempting target for espionage, and China has a long history of this kind of spying.

However, this led to unforeseen consequences, as rural cell service providers across the U.S. are almost entirely dependent on Huawei for inexpensive wireless communications equipment.

The Huawei ban will force many wireless providers to turn to expensive European technology, as there are few American alternatives.

While the two main parties involved are China and the US, the escalating war has results on a global level, especially impacting the rapidly developing economy of India. Industries, chiefly technology, is being pushed into the country, with Apple and Samsung, two of the world’s biggest smartphone makers stepping up their marketing and manufacturing efforts in India.

India’s stiff 20% import duty on mobile devices makes iPhones in India among the most expensive in the world and is one reason Apple has just 1% of the market there. Local production would allow iPhones to avoid the 20% tariff, allowing the brand to increase its presence both financially and socially.

With almost no positive signs coming out of the conflict, it is time to reevaluate the values and priorities of both nations involved in order to move forward in the right manner. While a trade war may no longer be avoidable, it is imperative for the heads of both nations to keep the citizen in mind when handling the future of our world’s economy.

7 thoughts on “The Troubles of Trump’s Tariffs

  1. I think that the tarrifs will just force China to renogotiate, because they have no legible leverage to use on the US that would not hurt them. If China decide to tank the US economy then they are tanking their own economy becaues they need the US to import their stuff, the reverse can not be said. The US can slowly move to manufacturing in Vietnam/Mexico/Bangladesh/Central America/etc

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    1. Markets in other place are opning up too, as manufacturing powers are creating wealth leading to a consumer class. For example, by 2030 according to the World Economic Forum, India is expected to surpass America in purchasing power. This allows China to transition to new makets even if it takes a hit in the short-term which destroys any present leverage we have. Not to mention how this can lead to an anti-american sentiment which is unequivically bad as seen in the middle east.
      America and China fighting it out hurts both economies who now have to support a large retired class (Baby-Boomers, Before 1 Child Policy) and most economists agree on free trade (due to specialization)

      America needs to stop trying to be a maufacturing ​economy. Most developed economies are a service economy in which we have a net surplus with China.

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      1. I think the problem is with China trying to get the US out of being the most powerful in the world, and this is not in any of our best interests. Tariffs on China, in my opinion, just have a large scale goal of slowing Chinese development and slowing down their economy, which let’s be honest is built on fraud. The US’s current global interest should be stopping China and halting its development at any measure. I mean let’s look at it this way, once the average farmer in China realizes that China is doing him this much injustice, China’s communist party will fall.

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      2. Trying to operate in a way that would hurt China, instead of help ourselves is how superpowers collapse.

        USSR focused resources on counteracting the “nuclear threat” of the U.S, even when they already had enough nukes, to hurt the US instead of help their economy which lead to their collapse

        Also on the farmer issue, we have tried this sentiment before with a more drastic step in sanctions and all it’s done is made the country more nationalistic.

        Sanctions on Cuba, Iran, North Korea hadn’t made the regimes fall and sanctions just much worse than Tarrifs and were used on much less important economies

        We are reaching the end of the business cycle have a large potential for a GLOBAL recession. China’s economy going down means the rest of the worlds economy goes down too

        Plus it seems American Farmers are more needy than Chinese, just look at the billions in subsidies

        Liked by 1 person

      3. I agree with that, I think there needs a win-win situation in an agreement because the current relationship is most definitely not a win-win relationship.

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  2. I think the problem is with China trying to get the US out of being the most powerful in the world, and this is not in any of our best interests. Tariffs on China, in my opinion, just have a large scale goal of slowing Chinese development and slowing down their economy, which let’s be honest is built on fraud. The US’s current global interest should be stopping China and halting its development at any measure. I mean let’s look at it this way, once the average farmer in China realizes that China is doing him this much injustice, China’s communist party will fall.

    Like

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