Trump Tariffs Against China Take Effect

07 July, 2018, 10:16 | Author: Sheila Harris
  • Europe rejects China’s offer of alliance in trade war with United States

China is raising U.S. soybean tariffs to 28%, up from basically zero percent all the while offering other nations a completely duty-free soybean import tariff rate of 0%.

While the administration says the trade barriers will force China to stop stealing American intellectual property, it appears more likely that non-Chinese businesses will bear the brunt of the tariffs, according to an analysis by the Peterson Institute for International Economics.

One well-known product that might be affected is Apple's iPhone, which is assembled in China. USA suppliers rarely make these attachments, so the company must import them.

The US trade deficit in goods with China now stands at about $375bn. China immediately responded with their own tariffs on $34 billion of American imports, primarily affecting US Auto and US Soy.

Trump is also sparring with the European Union over his threat to tax auto imports and with Canada and Mexico over his push to rewrite the North American trade pact. What galls them most is the president's justification: Using a little-used weapon in USA trade law, he has declared that the imported metals are a threat to America's national security. "These tariffs will do nothing to protect United States jobs, but they will undermine the benefits of tax reform and drive up prices for a wide range of products as diverse as tool sets, batteries, remote controls, flash drives and thermostats".

Who really makes the iPhone?

Under the banner of his "America First" policy, Trump has also targeted other traditional trade partners of the United States, such as the European Union, Japan, Mexico and even Canada. In the White House in 2018, he has started to make good on that pledge. USA and Chinese companies will now find it costlier to trade with each other, meaning less demand and higher prices. US taxpayers now owe China more than $1.2 trillion.

Still, Chinese investors and companies were anxious.

The other $228.99 goes elsewhere. "If we don't find an exit ramp, this will accelerate like a snowball going down a hill".

In short, China gets a lot of (low-paid) jobs, while the profits flow to other countries.

The U.S. dollar may be slowly losing its privileged status in global finance.

China lowered commitments to buy 366,000 metric tons of US soybeans in the season that ends August 31 and cut purchases by 66,000 tons in the following year.

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Scholars have found similar results for the broader U.S.

Since 1992, China has played an extremely important role in the USA trade. "No one wins in a trade war".

But China also believes that its economy, with a greater focus on domestic demand and a reduced dependence on exports, can ride out the storm.

Signs of nervousness about the trade outlook were evident elsewhere in global markets with the Japanese yen and the Swiss franc firm against the dollar while core USA and German bonds were in demand. European stocks trimmed gains and USA equity-index futures fluctuated.

UBS Securities economist Robert Martin said he sees the threat of as much as $400 billion in new levies as just a negotiating tactic.

An additional fact to consider: Tariffs would make USA oil uncompetitive in China. If so, that could hurt many ordinary workers. The vessel is near the port of Dalian, according to ship-tracking data. Companies like Apple have to deal with this reality. "For example, they can quarantine [U.S.] products for a long time".

Companies in industries that use metal, electrical components and construction products will have to pay more for raw materials, and possibly charge more for their work, or cut or move jobs.

The Trump administration contends China has deployed predatory tactics in a push to overtake US technological dominance. There is room for much tougher and more sophisticated bargaining to address these issues.

And since gold is the ultimate form of settlement – a global currency with no counterparty risk – national currency fluctuations, manipulations, and devaluations by trading partners would be of little concern.

China lodged a case with the World Trade Organisation (WTO) against the United States, its commerce ministry said in a one-line statement late on Friday.

"Our baseline forecast assumes only a modest further escalation in the trade "war" this summer", Bank of America Merrill Lynch said in a Friday note. Expanding tariffs to more and more goods will weigh on US consumers, workers and businesses.

This is a war that should never have been started.

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