Trump trade-off: China imposes tariffs on US goods
Tuesday, April 03, 2018
The world's two largest economies are not feeling the love on trade. China imposed $3 billion of tariffs on a range of U.S. goods on Monday. The bottom line on the impact is straightforward: tariffs hike prices for businesses and consumers in both nations.
Currently, 120 U.S. goods, including almonds from California and apples and cherries from Washington state, will cost 15 percent more in China. Eight other American items that include pork will cost 25 percent more for Chinese businesses and consumers, according to the nation's Ministry of Commerce, the Xinhua news agency is reporting.
The Chinese government's move is a retaliation for President Donald Trump invoking national security on March 1 and placing a 25 percent tariff on steel imports and a 15 percent tariff on aluminum imports. He exempted Canada and Mexico, U.S. trade partners in the North American Free Trade Agreement since January 1, 1994, along with Argentina, Australia, Brazil, the European Union and South Korea.
When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!— Donald J. Trump (@realDonaldTrump) March 2, 2018
"When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win," Trump tweeted March 2. "Example, when we are down $100 billion with a certain country and they get cute, don't trade anymore-we win big. It's easy!"
The new tariffs on U.S. goods amount to "0.13 percent of American exports," according to Mark Weisbrot, co-director of the Center for Economic and Policy Research in Washington, D.C.
"The Chinese tariffs are a fairly mild response," said Claude Barfield, a resident scholar at the American Enterprise Institute in Washington, D.C., while disputing the president's view that the U.S. is getting a bad deal on trade with China.
For now, though, some American exporters are dealing with higher prices for their items they sell in China. Meanwhile, some Chinese exports will become more expensive for U.S. businesses and consumers.
The news of the tariffs also hit the stock market hard. The Dow Jones dropped 458 points on Monday, while the NASDAQ and S&P 500 each fell more than 3 percent.
The result for American businesses and consumers is that they will pay more for Chinese imports with tariff-adjusted prices. Prices of imported metals used in making cars could hike the costs of vehicles. That would weaken car sales, and automakers' hiring of new workers.
The U.S. cannot change its deficit-driven trade policy with other countries, according to Barfield, without closing the ratio between American savings and investment.
"The U.S. has had a trade deficit with the world for 40 years," Barfield said. "We don't save enough to cover our investment and consumption."
What does cover that gap? The U.S. borrows to finance its trade deficit.
The Trump administration has already announced plans for an additional $50 billion in tariffs on 1,300 Chinese exports, including aerospace and communications technology. Given that China will likely impose more tariffs on U.S. imports if Trump follows through with this plan, the future of this simmering trade dispute looks bleak. A number of background talks between China and the U.S are underway, Barfield said, but it is unclear what the outcome will be.
This move by China "sends a message," said Dean Baker, a senior economist with the Center for Economic and Policy Research. "I'm sure they are prepared to do more if Trump keeps pushing. That will not be a good story."
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