Just the Facts

Five Facts on the Trade War Between China and the U.S.

By No Labels
July 9, 2018 | Blog

This past June, President Trump announced $50 billion in new tariffs against Chinese exports; part of those tariffs went into effect at 12:01 on June 6. With the additional tariffs supposedly going into effect at the end of July, China has vowed to retaliate with tariffs of its own. A trade war between the world’s two biggest economies could have negative effects on the global economy, on U.S. exports to China, and on prices Americans pay for some Chinese-made goods. Here are five facts on the developing trade war between the U.S. and China.

 

After months of tension a 25% tariff on $34 billion worth of Chinese imports to the U.S. went into effect on July 6.

The tariffs target industrial goods and technology, specifically vehicles, aerospace machinery, and medical devices. China responded with equivalent tariffs on $34 billion worth of U.S. products. Last Thursday, President Trump promised to levy taxes on an additional $16 billion worth of Chinese goods by the end of the month. In justifying levying the tariffs President Trump has cited the United States’ $336 billion bilateral trade deficit and China’s widespread theft of U.S. intellectual property, with one recent study saying it costs the U.S. as much as $600 billion per year. President Trump has also noted China’s intention to surpass the U.S. in high-end technology and artificial intelligence.

 

In a statement released last week China’s Ministry of Commerce said the United States “has launched the biggest trade war in economic history so far.”

The Chinese Ministry of Commerce added to this statement mentioning the U.S., upon imposing levies, had “violated World Trade Organization rules” which would ultimately “harm, not help America’s businesses and people.” Beijing has said China will retaliate with taxes on oil, natural gas, and plastics to “safeguard core national interests.”

 

In response to concerns over the trade war between the U.S. and China, President Trump tweeted, “We are not in a trade war with China, that war was lost many years ago.”

President Trump has complained about China illegally stealing U.S. intellectual property as well as the technically legal practice of “Forced Tech Transfer,” in which U.S. firms are forced to share their technology with Chinese partner firms as a condition of doing business in China. AxiTrader Chief Market Strategist Greg McKenna said that due to the “aggressive” tone of Chinese state media, “We are past the first shots fired in an escalating trade war.” On the other hand, a study by Bloomberg Economics estimated that if no further tariffs are imposed, “the hit to both countries’ economies will be modest.”

 

President Trump’s tariffs, covering 818 Chinese products, and the counter tariffs by the Chinese could hit some U.S. industries hard in the short term.

The U.S. tariffs will have a significant impact on the operational costs of a wide variety of farming machinery, forcing farmers to eat costs or raise prices. Industries that utilize aluminum and steel as well as several types of health care equipment will also be affected by President Trump’s tariffs on Chinese imports. Additionally, the Chinese counter tariffs target products associated with an additional 40 U.S. industries and 2.1 million jobs. These industries range from large scale enterprises such as plastics, automotive, and aircraft manufacturing enterprises to smaller industries, such as those involved with corn and soybean production.

 

There are concerns that this dispute could turn into a wider, more significant trade-war.

The Chinese Commerce Ministry spokesman, Gao Feng, has vowed that “China will be forced to fight back to defend the core interests of the nation and the interests of the people.” While “China will never fire the first shot,” according to Feng, they have promised to continue to hold out against U.S.  pressure. However, the tariffs have already affected the Chinese economy— and its stock market index has tumbled 12 percent over the past month. With much of the United States’ business community – including the U.S. Chamber of Commerce – concerned about the effects of an escalating trade dispute, they hope the two countries can come to a negotiated agreement that prevents further escalation.

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