According to Kimberly Amadeo (2018), a trade war starts when a nation attempts to protect a domestic industry from foreign competition and create more jobs. Additionally, Investopedia (n.d.) states that trade wars can also be triggered if a country perceives that another country's trading practices to be unfair or when domestic trade unions pressure politicians to make imported goods less attractive to consumers.
In the short run, it may work. But in the long run, a trade war costs jobs and depresses economic growth for all countries involved. It also triggers inflation when tariffs increase the prices of imports (Kimberly Amadeo, 2018).
Causes of U.S. Trade War with China
U.S. politicians have long threatened a trade war with America's largest trading partner in goods - China. A trade deficit occurs when exports are less than imports (Kimberly Amadeo, 2018).
In 2017, the United States exported $130 billion to China. The three largest export categories are aircraft at $16 billion; soybeans, $12 billion; and automobiles, $11 billion. U.S. imports from China were $506 billion. Most of it is electronics, clothing, and machinery. But a lot of the imports are from U.S. manufacturers that send raw materials to China for low-cost assembly. Once shipped back to the United States, they are considered imports. As a result, tariffs hurt U.S. corporations as well as foreign ones (Kimberly Amadeo, 2018).
China is the world's No.1 exporter. Its comparative advantage is that it can produce consumer goods for lower costs than other countries can. China has a lower standard of living, which allows its companies to pay lower wages. American companies can't compete with China's low costs, so it loses U.S. manufacturing jobs. Americans, of course, want these goods for the lowest prices. Most are not willing to pay more for "Made in America." (Kimberly Amadeo, 2018)
President Donald Trump justifies tariffs on imports by arguing that “unfair trade policies” have harmed American workers. This has led to a trade war in which the U.S. and China have placed tit-for-tat tariffs on each other’s products (Kimberly Amadeo, 2018).
Read: China's Economy And Its Effect On The U.S. Economy
How It Affects Americans
The trade war is already increasing the prices of consumer goods that use steel and aluminum. Domestic manufacturers that rely on imported raw materials or parts are reacting to higher costs. Soda and beer suppliers are the first to raise prices. Since their profitability is lower, their only other choice is to slash jobs. Trade war creates more layoffs as foreign countries retaliate. The 12 million U.S. workers who owe their jobs to exports could get laid off (Kimberly Amadeo, 2018).
The tariffs give a competitive advantage to domestic producers of that product. Their prices would be lower by comparison. As a result, they would receive more orders from local customers. As their businesses grow, they would add jobs. But Alliance of Automobile Manufacturers warned that even US-produced steel will cost more once cheap foreign imports are eliminated. The move is threatening the industry’s global competitiveness and raising vehicle costs for our customers (Kimberly Amadeo, 2018).
Many U.S. industries were affected soon after Trump announced the tariffs. Mid-Continent Nail in Missouri announced layoffs because steel prices are now too high for them to remain profitable. Harley-Davidson announced it would move some production abroad to avoid retaliatory EU tariffs. The Maine lobster industry will suffer from Chinese retaliatory tariffs on U.S. seafood. California cheese makers are already seeing their markets in China and Mexico disappear due to retaliatory tariffs. Wisconsin auto parts manufacturers and the U.S. bourbon industry are other industries being punished (Kimberly Amadeo, 2018).
Furthermore, Walmart said it may temper investments in U.S. job growth and raise prices for consumers. General Motors warned this summer the potential auto tariffs would lead to "a smaller GM" and fewer jobs. Lastly, Jack Ma, the co-founder and chairman of Alibaba, said the Chinese e-commerce giant will no longer commit to creating 1 million jobs in the U.S., blaming the deepening trade war (Rachel Layne, 2018).
Many U.S. imports from China originated in the United States. Raw materials are sent to China for processing, then exported back into America. An example is salmon caught in Alaska and sent to China for processing, then sent back to U.S. grocery shelves. If Trump imposes tariffs on seafood imports, it will raise prices by 25 cents to 50 cents a pound (Kimberly Amadeo, 2018).
Foreign tariffs on U.S. exports will make them more expensive. U.S. exporters may have to cut costs and lay off workers to remain competitively priced. If they fail, they may cuts costs further or even go out of business (Kimberly Amadeo, 2018).
On the consumer front, despite strong fundamentals, fading stimulus from the tax cuts, higher inflation and rising interest rates will limit the upside. Every time the trade war escalates, the risk to U.S. consumers grows and price inflation will also take a toll on consumer confidence (Jessica Dickler, 2018). As consumer spending accounts for about 70 percent of U.S. economic activity, thereby, higher consumption prices are expected to hurt economic growth (Rachel Layne, 2018).
As for businesses, slower global growth and reduced benefits from the tax package will also reduce the impetus for growth (Rachel Layne, 2018).
Consultant Oxford Economics predicted the trade war could cost the global economy $800 billion in reduced trade. That could slow growth by 0.4 percent (Kimberly Amadeo, 2018).
Over time, trade wars weaken the protected domestic industry. Without foreign competition, companies within the industry don't need to innovate. Eventually, the local product would decline in quality compared to foreign-made goods (Kimberly Amadeo, 2018).
Final Thoughts
Nobody wins in a trade war !
Tariffs are a tax on American families. A battle between the U.S. and China over tariffs could mean higher prices for shoppers later this year (Jessica Dickler, 2018).
Yet most U.S. companies oppose hiking tariffs, saying a trade war risks stifling global growth and resulting in the loss of American jobs. U.S. companies have long complained China can make it difficult for them to access its massive market and sometimes doesn't play fair under global trade rules. But most don't support tariffs as a way to prompt better behavior from Beijing (Rachel Layne, 2018).
Edited by: 浪子
Bibliography
Kimberly Amadeo. (2018). Trade Wars and How They Affect You. Retrieved from
https://www.thebalance.com/trade-wars-definition-how-it-affects-you-4159973
Rachel Layne. (2018). Trump's Trade War: Why the Economy May Soon Feel the Pain. Retrieved from
https://www.cbsnews.com/news/trumps-trade-war-may-crimp-us-economic-growth/
Trade War. (n.d.). Retrieved from https://www..com/terms/t/trade-war.asp
Jessica Dickler. (2018). How the Tariffs on China May Hit Your Pocketbook. Retrieved from
https://www.cnbc.com/2018/09/18/how-a-trade-war-affects-you.html
US-China Trade Wars And How It Affects Americans
Reviewed by 浪子
on
September 23, 2018
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Reviewed by 浪子
on
September 23, 2018
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