After what the most peaceful meeting between US and North Korea to date, Trump has yet again surprised the world. The President of the United States left Singapore with the praises of China’s President Xi Jinping, only to turn around less than a week later to slap China with the threat of tariffs on $200b worth of goods.
In an immediate rebuke to Trump, the Ministry of Commerce in Beijing said it would retaliate with “strong” counter measures. “If the U.S. loses its sense and publishes such a list, China will have to take comprehensive quantitative and qualitative measures and retaliate forcefully,” according to a statement from the ministry.
In a White House statement Monday evening, Trump said that he had instructed the U.S. Trade Representative’s office to identify $200 billion in Chinese imports for additional tariffs of 10 percent. He said the U.S. would impose tariffs on another $200 billion after that if Beijing retaliates.
“The United States will no longer be taken advantage of on trade by China and other countries in the world,” he said. “We will continue using all available tools to create a better and fairer trading system for all Americans.”
Despite the shocking announcement, Trump may actually have a good reason for increasing tariffs.
The US trade deficit with China was $375b in 2017, with exports to China worth only $130b compared to the $506b worth of imports. This is because China can produce many consumer goods for much lower cost than the rest of the world.
Compared to other countries like Europe ($153b), Mexico ($76.2b), or Japan ($69.7b), the US-China trade deficit is by far the largest gap, outstripping runner up Europe by slightly more than twice the amount.
With promises of retaliation on both fronts, many are saying that this might be the spark for a trade war. With China being the largest economy and the country with the largest population in the world, this may affect the rest of the us.
Many products from US companies are sourced and assembled in China. That means prices will go up if tariffs are increased. Inevitably, the ones to get the short end of the stick will be consumers.
Want to know how to read the trends of the economy and their effects on investments? Come to NAC and listen to our panel of experts to learn more!