The world’s two largest economies, the U.S. and China, are officially in a trade war. On July 6, the U.S. levied tariffs of $34 billion worth of Chinese goods coming into the United States, including air- craft parts, heavy machinery, medical equipment, diesel-powered truck, and buses. China immediately responded with its retaliatory tariffs on U.S. goods including soybeans, pork, beef, and automobiles. President Donald Trump announced that he is pre- pared to target the $500 billion value of Chinese im- ports if China does not does give in to his demands to open its domestic markets to the U.S.
In a daily news briefing, Lu Kang, a spokesman for China’s Foreign Ministry, accused the U.S. of violat- ing the rules of the World Trade Organization, attack- ing the world’s economic sustainability and obstruct- ing the global economy’s recovery. Lu Kang said, “it will bring disaster to multinational corporations, small and medium businesses and normal consumers across the world.”
The consequence of the ongoing trade war is unclear yet; however, it is obvious that much damage could be done. Besides European Nation, China is the larg-
est trading partner of the U.S. The U.S. exported $187 billion of goods to China in 2017. However, a large por- tion of these exports is now at risk of being replaced by alternatives as a trade war escalated. The elevation of a tariff will result in American producers to pay higher costs to sell their goods to China. Also, some of their existing revenue can be lost because Chinese buyers would seek cheaper alternatives from other countries. According to Forbes, China is already seeking alterna- tive suppliers of soybeans, which had been generating $14 billion in sales for the U.S. every year.
Furthermore, a tariff can generate negative impacts on U.S. technology industry. Compared to China’s agricul- tural imports, U.S. technology companies have fewer alternative suppliers that can provide high-tech products in large quantities. The rise of the cost that would be resulted by a tariff will shrink the profits of the compa- nies, and thereby result in fewer funds for the compa- nies to invest in new business and expand growth. The trade war would not only have a negative impact on the trade component, but it would also deter consumption and investment. The Peterson Institute for International Economics concludes that the U.S.-China tariff war will be self-destructive.
The U.S. had already levied tariffs of 25 percent on steel and 10 percent on aluminum for the Euro- pean Union, Canada, and Mexico. President Donald Trump said those countries are being levied in order to protect American national security interests. How- ever, the action generated series of trade wars. In re- sponse, each nation imposed tariffs on billions worth of U.S. goods. Deutsche Bank analysts warned that protectionism bring more protectionism, not more trade liberalization. “Protectionist policies can, in theory, succeed in gaining one country a larger slice of the global pie, but they inevitably invite retaliation that results in a substantial shrinking of the global pie, making all countries worse off.”
Jiyong An/ Tax Advisors for Champaign Society (TACS)