The United States has a huge amount of Chinese goods flooding its market. These are not contraband goods but rather goods imported from China by the United States. China is one of the oldest trading partners of the United States. However, during the presidential election campaign, Donald Trump promised that that international trade should be fairer for the country. In recent months, the U.S. has been involved in a retaliatory battle with some of its trading partners. The partner getting a lot of interest is China.
President Trump wants U.S. consumers to patronize locally produced and manufactured products. In recent months, he imposed high taxes on goods imported from China, Canada, the European Union (EU) and Mexico. These countries have all retaliated. China went on to say that the U.S. launched the biggest trade war in the history of global economics.
The hard-line stance on trade by the U.S. President led to his withdrawal last year from the TPP or the Trans-Pacific Partnership trade pact. It is a set of free trade policies that were used by the trading partners for several decades.
For this year, there were already three tariff impositions on Chinese goods, which is worth about $250 billion. For the first and second rounds, $50 billion worth of Chinese goods were given 25% tariff. The biggest was in September, where $200 billion worth of Chinese products received a new set of tariffs. China has retaliated in the same way.
The new set of taxes took effect on September 24, beginning at 10%. Unless a deal is reached the taxes will increase to 25% at the start of 2019. President Trump warned that if Beijing retaliates, he would enforce a new set of taxes on Chinese products worth $267 billion.
If this happens, the U.S. would be charging import taxes on all of the Chinese products that enter the country.
U.S. President Trump and Chinese President Xi Jinping agreed to have a 90-day truce on the trade war during their meeting at the recently concluded G20 summit in Buenos Aires. President Trump agreed to hold off the new tariffs that are supposed to take effect on January 1, 2019. President Xi agreed to buy a huge amount of goods from the United States, including agricultural, energy and industrial products to reduce the trade deficit.
Why is the trade war happening?
President Trump said that he wants to protect the jobs of U.S. workers and prevent the transfer of intellectual property and American technology to China through the import taxes.
Theoretically, imposing taxes on imported goods renders the products made in the United States cheaper. Ideally, it is meant to help the growth of the national economy by protecting and patronizing local businesses.
In reality, many industry groups and companies in the United States are already stating that their businesses are suffering due to the trade war.
The trade disputes started in January 2018 when the government levied high tariffs on imported solar panels and washing machines. President Trump is not only engaged in a trade war with China but with other trading partners such as Canada, Mexico and the EU. It happened after he pulled out of the TPP. He also wanted the North American Free Trade Agreement (NAFTA) renegotiated.
The United States charged higher taxes on its importation of aluminum and steel from Canada, Mexico and the EU. U.S. companies have to pay 10% tax on aluminum and 25% tax on steel imported from the aforementioned countries.
The tariffs caused these nations to retaliate. The U.S. exports to the EU last June that included orange juice, motorcycles and bourbon whiskey worth €2.8 billion were slapped higher taxes. In the same month, Mexico placed higher tariffs on pork, bourbon, steel, cheese and whiskey from the U.S. The following month, Canada imposed tariffs on U.S. products worth 16.6 billion Canadian dollars.
The higher tariffs imposed by the U.S. on various imports from China, Mexico, the EU and Canada have affected other producers.
The International Monetary Fund predicts that it will reduce global economic growth by 0.5% by 2020.
Car manufacturers such as General Motors and Ford are already feeling the crunch and have lowered their profit forecast for this year because of the higher cost of imported aluminum and steel.
Sub-contractors of Chinese manufacturers located in smaller Asian countries are also affected by the trade war. About 30% of the monetary value of Chinese goods exported to the United States comes from the smaller sub-contractors.
Analysts see that China may use different tactics to retaliate. It as a trade deficit because it buys less from the United States. But the country can hurt a number of U.S. companies operating in China by increasing bureaucratic red tape.
Chinese goods that the U.S. imports
During the first year of President Trump’s presidency, the trade deficit with China was $375 billion. U.S. imports reached more than $500 billion. In 2017, the U.S. imported various goods from China, with the top Chinese goods, included in the list below.
- Computers and electronics including cell phones
- Electrical equipment
- Miscellaneous manufacturing
- Fabricated metal
- Plastics and rubber
The U.S. Census website provides data on the amounts of goods traded by the U.S. with China.
From January to September 2018, the U.S. exported $93,363 mn and imported $394,731.3 mn worth of goods. The deficit reached $301,368.2 mn.
In 2017, the figures are as follows:
- Export ($129,893.6 mn)
- Import ($505,470 mn)
- Deficit ($375,576.4 mn)
In 2016, the figures are almost the same.
- Export ($115,545.5 mn)
- Import ($462,542 mn)
- Deficit ($346,996.5 mn)
Through the years, the level of import against export between China and the U.S. has not been equal, with the U.S. buying more from China than selling to China.
As you can see from the above list, a number of Chinese goods are imported by the United States. On the other hand, the country only exports the following domestic products to China:
- Farm crops, including soybeans
- Transportation equipment
- Oil and gas
- Waste and scrap
- Minerals and ores
- Forestry products
If you compare the top 3 Chinese goods imported by the U.S. with the top 3 U.S. products exported to China, you’ll see the huge disparity.
Imports from China
- Computers and electronics ($167.3 bn)
- Electrical equipment ($39.9 bn)
- Misc. manufacturing ($38.6 bn)
Exports from the U.S.
- Farm crops ($15.3 bn)
- Transportation equipment ($10.5 bn)
- Oil and gas ($6.9 bn)
From the point of view of analysts
Analysts think that the trade deficit is not going to be reduced unless the United States finds a way to address the major exports from China.
Even if the country bans the products not included in the top 10 list of Chinese imports, it would only amount to about 3% reduction of the trade deficit. The trade deficit of $370 bn will still be left if the importation of steel and aluminum from China is banned.
What the analysts want to point out is that the U.S. must equal the amount of export against the amount of imported goods included in the top of the list, such as the computers, electronics and electrical equipment. Unless the country can find other sources, it cannot stop the importation of toys, computers and cell phones. Otherwise, the American consumers would be paying more.
China has a huge surplus of these products, which is why they push them to other markets. If the U.S. lowers the importation of these products, China can retaliate by lowering the importation of soybeans, which could be disastrous to American farmers and producers.
Moreover, the main source of imported apparel in the U.S. is China, which ships 36.49% of the foreign-made clothing sold in the country. China is followed by Vietnam, Indonesia and Bangladesh. Aside from apparel, about 84.95% of the imported footwear available in the U.S. comes from China. It also leads in the availability of imported furniture (58%), followed by household and kitchen appliances (49%).
The trade war with China has prompted several U.S. corporations to join hands to petition the White House to decrease the tension as it is making investors jittery. Various factors have led to the huge trade deficit. The country now imports specific products that are no longer manufactured in the U.S. but are needed by American consumers.
It is difficult to predict when the trade war will end and when the trade deficit with China will be reduced. The effects of the trade war might be massive because it is hurting the producers, manufacturers, farmers, workers and consumers.
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