President Donald Trump wants to move ahead with a plan to impose additional tariffs worth US$200 billion in Chinese imports as soon as a public-comment period concludes on September 6th. The action is likely to further unnerve financial markets that have been concerned about the growing tensions. Stocks fell on the news, with the S&P 500 testing the key 2,900 level. The offshore yuan dropped to a new low, while the dollar and the yen gained amid a flight to safety. As in the case of the earlier imposed tariffs on steel and aluminum, the proposed tariffs are bound to affect other countries. The tariff news exacerbated already fragile market sentiment amid currency routs in Argentina and Turkey. In addition, American consumers will feel the effects in the form of more expensive manufactured and other goods imported from China.
Yes, while there are some concerns about China’s trade policies in the past, copyright infringements on some products, and restrictions on foreign investment in the country, I’m not sure that Trump’s negotiating tactics are necessarily the best way to deal with these issues. Chinese President Xi Jinping has made it very clear that China will not be bullied into any trade agreement with the U.S. In addition, the full impact of a trade war has yet to happen in the U.S. How many sectors and industries will the administration have to provide public funds to offset the economic impact, as was done recently in the agricultural sector? Who pays for this?
China, like Russia and some other countries, is already moving away from using the American dollar as a primary currency used in foreign trade. As well, China’s nearly $13 trillion economy, which no longer depends so much on exports and can easily find other places besides the U.S. to sell its products, can take the hit much better than the U.S. This is especially true as the U.S. has started trade disputes on several fronts at the same time, such as with Europe and Canada. Most of China’s products imported to the States, and there are many of them, still won’t have any tariffs on them at this time. Many American businesses depend heavily on global supply chains, such as China, in order to remain competitive and viable.
Since Donald Trump’s election, the Chinese, including its banks, had made earlier concessions of foreign investment and the lowering of tariffs on imported cars. It would appear that a thoughtful, reciprocal and incremental approach to trade negotiations would have made more sense for all concerned. Instead, we have an American President who says that “trade wars are good”. I’m not so sure. Are you?
FROLITICKS 