The United States and China are engaged in a full-on trade war, with added tariffs on imported goods, and we take a lot more of China’s stuff than China takes of ours.
The stock markets are not happy with such a conflict, because most brokerage houses and investors know who gets hit the hardest from an escalation of trade tariffs.
President Trump has finally backed down from recent claims that “massive” tariff payments are going directly from China’s pocketbook to the U.S. Treasury, thus helping Americans financially.
Payments are, in fact, flowing into the U.S. Treasury, but American taxpayers are the ones paying the tab.
Any tariff on goods imported from China is paid by the importer, not the exporter. Buyers at this end pay what is essentially a tax, and when those products reach the marketplace, customers buying those imported goods will be paying higher prices, compensating for the extra costs at the wholesale and retail levels.
When a trade war persists, consumers generally are compelled by soaring prices not to buy, basically undercutting a nation’s economy. The falling domino theory in real time.
The president also wants $15 billion via subsidies to protect U.S. farmers from the effects of this trade war. Farmers need that money to offset losses on crops not sold to China, Canada and Mexico, because the trade war has caused our trading partners to buy those products from other, friendlier nations.
The president also wants to use the trade tariff dollars added to the Treasury to buy U.S. farm products not being purchased by China, and send those products to other nations in the form of humanitarian aid. Not a bad idea, but it comes after Trump proposed eliminating key federal food-aid programs.
If this strategy isn’t really adding up for you, logic-wise, you are among a growing number of Americans who are watching a nation that has led the world in foreign policy strategies — America — slipping into policy chaos.
Meanwhile, and if China does not buckle under to the Trump administration’s demands, most of us are facing higher costs on a wide range of products manufactured in China and imported by U.S. companies. Some of those price increases could be exponential, depending on how much profit a U.S. retailer is willing to give up. Those products include computers, clothing, machinery, plastic, sneakers and a good deal more.
California growers took a hefty hit last year when China countered the Trump administration with higher tariffs on a number of products, many of which are grown locally. It’s a double-whammy for American growers— profits shrink and the cost of new equipment soars.
Trump is correct when he points to the trade imbalance between the two countries, with China being the biggest winner. But a U.S. Trade Representative Office report shows exports of U.S. goods to China have increased by nearly 73 percent since 2008, and U.S. exports to China overall are up 527 percent since 2001. The trade gap has been narrowing.
Trade wars typically lead to slower growth for the countries involved, rather than the prosperity Trump said will occur. This latest tariff spat could depress the U.S. gross national product, which ultimately takes money out of U.S. households, a fact that Larry Kudlow, head of the president’s National Security Council, confirmed last Sunday — opposite of what his boss is saying.
The real bottom line is that all sides involved in a global trade war that has back-and-forth, increasing tariffs end up losing.