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Are We Still Not Calling It a "Trade War"?

Mark Vickery
An additional 10% tariff is set to hit $200 billion of Chinese goods coming into the U.S. starting Monday, and $60 billion in U.S. goods will now be taxed coming into China.

Tuesday, September 18, 2018

So President Trump has taken his next move on the trade board with Chinese imports — an additional 10% tariff is set to hit $200 billion of Chinese goods coming into the U.S. starting Monday. This follows the initial $50 billion in goods from China that have been taxed already, in hopes Trump has of getting the world’s second-largest economy to practice fairer trade policies with the U.S.

We already see a few carve-outs of the $200 billion in imported goods: Apple’s AAPL Watch is reportedly not to be affected, nor is the FitBit FITB smart watch device. What goods are expected to be directly affected are those mass-produced by China-based countries and sold at discount retailers in the U.S., like Walmart WMT. China has already begun to target industries within the U.S. breadbasket in their retaliatory efforts in this — let’s just call it what it is — “trade war.” Just this morning, an additional $60 billion in U.S. goods are now being subjected to new Chinese tariffs.

The 10% tariff to be institutes next week blossoms up to 25% after the first of the year, turning up the heat even more in this current standoff. Trump and his trade policy associates such as Director of White House Trade Counsel Peter Navarro. Furthermore, Trump has threatened that any further retaliation by China will result in what he calls “Phase Three”: an additional tax on $267 billion in Chinese goods, basically affecting all Chinese imports to the U.S.

Yet Beijing feels its hand is forced, and that retaliation is the only course of action for China in the current scenario. Currently, analysts in China expect the newly proposed $200 billion in tariffs may hack more than 50 basis points off economic growth this year, which had already been lagging compared to robust growth in previous years. The Chinese economy is expected to grow roughly 6 1/2 percent for both calendar 2018 and 2019.

Whether or not these trade adversaries are simply putting on their best poker faces, there is talk this trade war may last for the next 3-5 years. With robust economic development and employment in the U.S. currently, it appears as though — certain farmers and other goods producers notwithstanding — we would be able to weather a trade storm… for now. But what about when jobs are affected, when entire regions in the Midwestern states and elsewhere are sent reeling?

U.S. Commerce Secretary says China is “out of bullets” regarding retaliation. He has a point, in that the U.S. imports so much more from China than they do from us, thereby the sheer tonnage of tariff taxation cannot be remotely matched on the other side of the Pacific. Within Mainland China, “expansionary fiscal policy” is being discussed, including, presumably, printing more yuan to cope with the hit the U.S. tariffs will bring.

Supporters of Trump and Navarro’s policies see China weakening and prone to come to the negotiating table before the U.S. needs to acquiesce. But it’s hard to know this for sure; as with many things in the Trump administration, we’re currently out in uncharted waters. Hopefully those waters won’t soon begin to swirl and foment with bad feeling and hatred as the trade war advances.

Mark Vickery
Senior Editor

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