As the U.S. President Donald Trump is all set to announce his policy of more tariffs towards China, both Main Street and Wall Street prepare for a showdown between these two economies.
It is expected that Trump would levy import tariffs on Chinese goods worth $60 billion annually which is just a bit more than about 10 per cent of the total imports from China into the U.S. in 20017. There is no clarity about the particulars of the goods to be taxed.
Why is it Important
Trump is already putting his campaign promises of higher tariffs on imports into action. There has been tough response from China which has warned the U.S. with retaliatory tariffs on U.S exports to the country without being very specific.
There is a growing worry among investors, economists and policymakers about the global market being impacted negatively by a trade war between China and the US. Shoppers in the U.S. who are used to purchasing a lot of ‘made in China’ products are likely to spend more. However, the increase is very much open to guessing.
This brings a lot at stake for the market as well as for companies.
However, such fears have been downplayed by the Trump administration saying that the apprehensions have been blown out of proportions. And that Trump is simply fulfilling his campaign promise of getting tough on China by imposing tariffs.
Warnings have again been sent on Tuesday from China to Trump.
“A trade war does no good to anyone. There is no winner,” China’s Premier Li Keqiang said at a press conference in Beijing.
There can be a retaliation from China. U.S. crops such as soybeans or sorghum are mostly exported to China which can be a target for higher tariffs by China. Or the country can simply choose to import more from producers like Brazil and Argentina.
China also is the owner of more of U.S. government bonds than any other country in the world which makes it the largest creditor of the U.S. And even tough investors are not apprehensive of sudden dumping of U.S. bonds by China, it is one of the possibilities of retaliatory measures by China.
How did the Situation Develop?
An investigation into theft of U.S. intellectual properties by China was launched in August last year by US Trade Representative Robert Lighthizer. Those included software, cell phone apps and technology patents.
The services industry – such as the technology industry, drives the U.S. economy. Therefore, intellectual property theft by China hits the economy quite hard.
There are four major allegations of the U.S. against china
Chinese companies steal technologies developed by U.S. firms after the later is forced into entering into partnerships to enter the Chinese market.
U.S. tech secrets and innovation are being stolen by Chinese firms with help from government funds.
China spies on U.S commerce with the use of “cyber intrusions” into US commercial networks.
And lastly, compared to Chinese companies operating in the U.S., there is much less property rights for American companies in China.
That investigation is in the process of being rounded up by the Trump administration. And for trade experts, there is only one outcome – more tariffs.
(Adapted from Money.CNN.com)