During early trading hours, the U.S. stock market was down 470 points after President Trump announced that the U.S. would be placing a 25% tariff on $200 billion in Chinese goods and add tariffs to $325 billion in other goods.
The trade talks between the world’s two largest economies are at a crucial juncture — what happens next will have significant implications for the world economy.
On Monday, President Trump tweeted, “The United States has been losing, for many years, 600 to 800 billion dollars a year on trade. With China we lose $500 billion. Sorry, we’re not going to be doing that anymore.”
Trump has been tough in his rhetoric toward China-U.S. trade deals for years. He blames China for taking advantage of the U.S. by manipulating their currency and exporting more goods to the U.S. then they import from the U.S.
The stock market rebounded after reports claimed that a Chinese Trade Delegation would be visiting Washington, D.C. later in the week.
President Trump has used the tariff threat as a way to get the Chinese to the table to discuss a trade deal.
All eyes will be on Chinese Vice Premier Liu. According to Barclays economists, “All eyes will be on how China responds … an absence of Liu in Washington, D.C. would raise the likelihood of the 25% tariff hike being implemented by the U.S. this Friday, in our view, while it is also possible that President Xi may call President Trump directly, which could prevent the tariffs from being raised.”
Trade Wars Are Dangerous
Trade wars often hurt both countries in the long term. The Great Depression of the 1930’s was exacerbated by the “Hoot-Smalley tariff,” which helped contribute to the global depression.
Tariffs serve as a tax on both countries and raise costs for all consumers.
For example, in 2002, President George W. Bush placed a 30% tariff on Chinese steel — the results were a calamity for American workers. According to the Consuming Industries Trade Action Coalition, the tariff resulted in the loss of 200,000 jobs in business that buy steel, resulting in $4 billion in lost wages and the loss of more jobs in these industries than were employed in the entire steel industry.
Contrary to popular beliefs, the U.S. does not get most of its steel from China — in fact, it’s not even in the top 20. The U.S. imports 90% of its steel from Canada. The U.S. is only the 26th largest market for Chinese steel.
It is true that tariffs can for a short time help industries such as steel in the short term, however, it comes at the expense of other industries. More expensive steel and aluminum make producing goods such as washing machines and cars more expensive.
Those costs are then passed on to consumers.
So far the economy hasn’t taken a devastating blow from the tariffs, however, that is likely to change, if trade barriers are further erected between the two countries. Both countries will suffer as