July 5, 2020 12:53 AM RSS

President Trump’s Chinese Trade War Hurt the U.S Economy!

  • Wall Street Rebel | James DiGeorgia
  • 01/01/2020 5:02 PM
President Trump’s Chinese Trade War Hurt the U.S Economy!

The Trump Administration has predicted major gains still to be made from the latest trade deal with China.  However, the losses inflicted on the U.S. economy by the 19-month trade war are unlikely to be made up anytime soon.

In an interview broadcasted last Sunday, Trump’s primary trade negotiator, Robert Lighthizer, stated that this trade agreement would help both countries settle their differences regarding contentious issues like financial services, currency, and intellectual property. He stated that the deal was a remarkable affair and suggested that the final agreement would double the value of all US exports shipped to China before 2021.

However, Lighthizer agreed that the 'Phase One' limited agreement was just a partial triumph for the United States. Many more issues have to be worked out throughout several remaining phases. Lighthizer stated that their first move was to integrate two different systems that would benefit both countries. He cautioned that changing China and its economy to accommodate US interests would take a long time. He said that it would be foolish to try to accomplish them in a single stroke and added that President Trump was smart enough to understand this.

Business groups on all sides have welcomed this limited trade deal as a signal of trade war tensions coming to an end. Mr. Lighthizer stated that the value of US exports shipped to China would increase by $100 billion in the next year alone after the new trade agreement is implemented, which is tentatively scheduled for January 15th.

The pact’s economic benefits have come at a high cost. For starters, the various tariffs that were imposed on Chinese imports have shaken the world’s confidence in America. Trump saw these tariffs levied on China as essential to his negotiation position.  The result of these factors resulted in raised costs for American businesses, made them undertake costly supply chain overhauls, and made them postpone new hiring and investment.

When these factors are considered, trade experts agreed that the latest agreement presented no significant gains. Edward Alden of the Foreign Relations Council stated that the trade deal did not prove that Trump’s tactics were effective. Rather America was losing big in exchange for a small deal.

To force China to accommodate American interests, Trump led the imposition of new tariffs which were more than any similar measures undertaken by a President in recent history. Trump also stated on Friday that he was canceling the proposed tariff hike that was originally supposed to go into effect on Sunday. He also announced a reduction in tariffs on some Chinese imports.

Tariffs remain on over $360B worth of Chinese imports, which include most of the products exported to the US. These will remain in effect indefinitely.

These tariffs cover many different product categories, which US officials allege were subsidized by the Chinese government to increase their competitiveness globally. They also cover many categories that are important to the US for economic security or national security reasons, like nuclear reactor components or industrial motors and pumps.

In an interview given on Sunday, Lighthizer stated that these tariffs would motivate China to pursue a trade deal with the US. However, many businesses have protested the tariffs as an additional tax that hindered their ability to trade with Chinese suppliers.

Companies that source finished products and parts from Chinese sources have shelled paid over $40B in additional costs since the first tariffs were imposed against China, as per U.S. Customs and Border Protection released data. Although Trump is insistent that Chinese suppliers were bearing the brunt of the damage, studies have shown that American consumers and businesses assumed most of the damage instead of Chinese suppliers.

This trade deal has to cover many other issues in the agriculture sector as well.

With trade war tariffs ratcheting up the pressure, US farm exports shipped to Chinese buyers have declined sharply with China retaliating in like on American exports. Chinese state buyers started purchasing goods from Argentina, Brazil, and several other countries. US farm exports fell to $9.2B in 2018 from a high of $19.6B in 2017, as per data from the United States Department of Agriculture. The situation has not improved since this 2017 data was released.

Trump and his team of advisers have suggested that this new deal would push China to purchase between $40B - $50B in US farm products a year. However, some trade analysts have started questioning whether these estimates are reliable enough, given the fact that the US has never exported more than $26B worth of farm exports to China. (This took place in 2012).

Additionally, the US-China trade war has caused severe uncertainty and damaged both the global and American economies. Business investments have fallen to all-time lows.

Trump has repeatedly pointed to the country’s solid stock market, high levels of consumer confidence, and a low unemployment rate to be evidence that this trade war has been a successful venture. However, trade experts believe that the American economy would have been even stronger, had Trump not imposed new tariffs.

Mark Zandi of Moody’s Analytics stated that this trade war was responsible for lowering the American GDP by 0.3% in Q3 2019. The economy has experienced a growth of 1.9% in that period.

Zandi stated that the trade war had damaged the country’s economy, especially the manufacturing industry, which was still reeling from the trade war’s effects.

The latest round of tariffs that President Trump had decided to cancel would have troubled American consumers even more since it would have raised the prices of smartphones, apparel, and other such finished goods. Trump had previously rolled back tariffs that were imposed back in September 2019 on other products.

However, existing tariffs that affected the import of industrial machinery and components severely would still be in effect. Ironically, this is likely to affect companies who are manufacturing goods in the US, instead of sourcing them from China.

Robert J. Leo of the American Down and Feather Council stated that additional levies on feathers and down from China would stay in effect. However, Chinese-made pillows and comforters were exempt from additional levies.

This meant that Chinese manufacturers could continue to manufacture in China and export them without being subject to tariffs, whereas US manufacturers who import raw materials for making finished goods in the US would remain subject to tariffs.

In spite of these barriers, Lighthizer stated that Friday marked an important milestone in trade history. Apart from the new trade deal, the Trump administration also submitted an updated version of the United States-Mexico-Canada Agreement to Congress, seeking their vote of approval.

Prof. Eswar Prasad of Cornell University stated that these two deals were being hyped as major gains for the US and as a result of effective negotiations made by Trump’s team of negotiators. However, the trade deals were hardly any consolation, given the fact that the uncertainty currently prevailing in the business world is at all-time highs due to the trade tariffs and unreliability shown by Trump’s team multiple times, which has caused falling investment levels and damaged business sentiment.

The new North American trade deal has received the approval of Democrats in Congress was passed in the US House of Representatives before Christmas break and will be signed by the Senate this month.  Mexico had objected to the stronger labor laws contained in the deal but their issues have been solved.

Mexico’s chief negotiator Jesús Seade had to hold meetings in Washington on Sunday. The US had earlier stated that it would be sending over five labor attaches for monitoring labor conditions as per the conditions of the deal, which were rejected by Mexico who held it to be a violation of the country’s sovereignty.

On the other hand, Chinese officials have so far stuck their end of the trade deal that was finalized on Friday. It has canceled its plan to impose additional tariffs against US imports on Sunday.

China’s Finance Ministry stated that its tariff council has decided to rescind plans for imposing tariffs of 5%-10% on American products, especially farm goods such as seed corn, sorghum, flavored tea, navigational radars, magnifying glasses, and electric shocks. China had earlier stated that new tariffs would be implemented against the US if the Trump administration did not back down from their plan to impose new tariffs. 

The Ministry stated that Chinese authorities would collect 25% tariffs on many other US imports since America hadn’t rolled back the imposition of 25% tariffs on Chinese imports worth over $250B.

Chinese foreign minister Wang Yi applauded the new trade deal, which was also echoed by Chinese state media.

Wang stated that the new pact was a symbol of both the US and China agreeing to patch things up and respect each other – which was important for Beijing. He stated that this new deal would help stimulate their economies as well as the world economy.

He announced that the new trade deal would renew confidence and trust in the world economy, as per Chinese media sources.  

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