In the overnight hours of July 5th, $34 billion of tariffs on Chinese goods went into effect in the United States. China immediately retaliated with the opening shots of what it called the “biggest trade war in economic history.”
Not to be outdone, the United States is looking at expanding its 25-percent duty on China’s exports by another $16 billion in just a few short weeks — the Trump Administration has, historically, not waited to implement policy or take initiatives. On anything. Ever.
(The White House)
In the hours before the U.S. tariffs were set to go into effect on things like washing machines, solar panels, steel, and aluminum, President Trump spoke of the possibility of even more duties on upwards of 0 billion’s worth Chinese imports. It’s the latest in a long history of tough talk on trade.
Even his most vocal critics will agree that it’s one thing he’s never changed his stance on.
The President’s stated goal in trade restrictions with both allies and ideological rivals is to close the widening trade deficit between what the U.S. imports and what it exports. With China, that trade deficit topped out at 5 million. As of May 2018, the trade deficit was .1 billion, at 5 billion for the year.
A large trade deficit doesn’t necessarily mean the economy is weak or struggling. And tariffs aren’t always the best way of closing that gap. Even the right-leaning Heritage Foundation says there is no correlation between trade deficits and weak economy.
But while the President argues that a trade deficit hinders economic growth and hurts job creation in the United States, his argument runs counter to the widely-held economic belief that the trade deficit tends to grow during periods of strong U.S. economic growth because increased demand brings more imported goods. Consumer goods is exactly where the bulk of the U.S. trade deficit with China is growing.
Another goal for the President and those around him is to stop the numerous unfair and often illegal things China practices in the global marketplace. They have long been known to artificially devalue their currency in order to undermine other countries in the global market, demand trade secrets from corporations in exchange for access to the Chinese market, and to outright steal intellectual property and technology from other countries and firms, to name just a few.
The Trump Administration already placed tariffs on products from certain other countries, like Canada, Mexico, and the European Union. In retaliation, they have implemented tariffs of their own, placing duties on politically-charged goods that target members of Congress — cheese, targeting House Speaker Paul Ryan of Wisconsin, and bourbon, targeting Senate Majority Leader Mitch McConnell of Kentucky, for example.
Retaliatory tariffs are designed to hit an official’s constituency, making trouble for their potential re-election campaign (though Ryan has opted not to run again). These countries have also targeted the Trump voters themselves, placing fees on red-state products like, soybeans and pork.
Russia has also slapped U.S. steel imports with a tariff of its own.
There’s no single definition of when retaliatory tariffs become a “trade war,” but exchanges in escalating economic pressures, like the recent exchange between the U.S. and China, is a surefire place to start. What Americans need to be prepared for is the passing of costs to the consumer. A rise in the price of steel due to tariffs is going to be passed on to the consumer of cars, for example.
The price of a washing machine has already risen 16 percent in the last few months, while the trade deficit saw the largest three-month reduction in the past ten years. The rising Chinese market is estimated to shrink by as much as one percent in the coming days while the U.S. will look at shrinking just .2 percent. U.S.-bound orders in China have shrunk while shares of Chinese businesses are already down 12 percent over the past few months.
But U.S. allies in Europe have declined to join China in a coalition against the Trump Tariffs.
While economists say no one would criticize the idea of trying to force China to play by the rules, the same economists would tell you they’re uncertain that tariffs are the way to go about it.