By Savannah Green (CMC ’20)
One of President Trump’s major economic issues has been the US’s increasing trade war with China. In 2017, the US carried out an in-depth investigation into Chinese hacking, following reports that the Chinese government was targeting key US industries as a way of gaining new technology. In response to the investigation’s findings, the US government imposed billions of dollars of tariffs on Chinese products. Unsurprisingly, the Chinese government did not sit idly by and accept this fate. They answered quickly with higher tariffs on specific industries like chemicals, coal, and medical equipment. As a strategic maneuver, the Chinese have chosen to specifically target industries that are concentrated in Republican districts and can be purchased outside of the US.
The US investigation into the Chinese practices for exporting goods has led to an increase in tariffs against China. The investigation confirmed the American suspicion of China’s theft of foreign intellectual property. The US is betting that the Chinese surplus in trade with the US will likely make the trade war hit the Chinese market hard. Unfortunately, many are worried about where this tariff war will lead; could this result in the downfalls of both economies? Many countries that trade with either the US or China are particularly worried about being dragged into the war, but the US has announced talks that they plan to allow European countries, Canada, and Mexico exemption from tariffs on certain goods. Instead, these countries are likely to face quotas even though many believe they should be exempt from extra cost altogether. Nonetheless, these rising tariffs within the trade war will only directly affect China.
Event prior to this tariff war, the US and China have always had tariffs on goods from each other. In 1996, about 75% of Chinese imports into the US were subject to duty. However, the number has been slowly decreasing for decades, as only 41% of all goods were subject to duty in 2017. Although the percentage of goods being imported into the US has increased since 1996, the amount of dutiable goods had still decreased prior to 2018.
These sharp rises have sparked a major trade war because the rates that the US imposes on its other major trade partners is significantly lower than that on China. Mexico and Canada had rates of 0.08% and 0.12% respectively in 2017 while China was at 6.5%. In March of 2018, the US increased tariffs against China to $3 billion dollars and China retaliated quickly after with their own $3 billion dollar tariffs on US goods. After much escalation, both countries increased their tariffs to $34 billion dollars in early July of 2018. By the beginning of August the US proposed an increase to $200 billion dollars, but the country has yet to pull the trigger.
Since December, both countries have decided to call a temporary truce. There is currently a threat from President Trump to increase the tariffs from 10% to 25% on about half of all goods from China. This has been halted as both countries have been engaging in negotiations. The original deadline for negotiations was March 1, 2019, but it has since been postponed. Many domestic businesses are waiting anxiously as they prepare for the next possible blow up between the two governments. They are having to reexamine their supply chains and look for cheaper options in order to account for the high tariffs China and the US will have to pay.
Many companies, both international and domestic, have voiced their opinions on the matter. They are worried this trade war will increase tariffs for good, forcing domestic producers to change their business structure (especially for those in vulnerable industries). As of now, there is still a possible $267 billion dollar tariff from the US if negotiations do not go as planned. A tariff of that size could severely hurt the economies of multiple countries—beyond just the US and China—as well as damage the Trump 2020 election campaign. The world patiently awaits said negotiations with hope that both leaders will take into account all parties affected and come to an agreement that will satisfy all.