By: Mike Hammer
The trade war with China is front-page news these days, as it should be. While no new tariffs have actually started yet, the threat of them has sent a shock through the US stock market. Let’s look at a few background points and current facts, not so much to try to predict what will happen (such predictions are wrong about 99% e time) but to understand what’s happening without the breathless media spin.
Background points you don’t often hear when the trade war is discussed:
- Trade between the US and China has always had tariffs on both sides. In theory, each side tries to protect jobs in their local workforce while bringing in things they need more freely. As to how that’s accomplished – well, that’s always the hard part.
- Among the more curious tariffs China has now on goods from the US are on suits, furs, diapers, sport shoes, and skincare products. Past contentious tariffs that have been reduced include automobiles. Yes, some US cars are considered “pure luxuries” and have high status value in China. You can order the official book listing exactly what these tariffs are and how they are applied at this website.
- China requires that any company operating in China turn over their technology to the Chinese government. Obviously this could be problematic if the technology falls in the encryption or nuclear weapon control category.
- China’s 2025 policies for economic expansion include state funding for target industries. The US claims these give Chinese industries an unfair advantage by reducing prices for products produced by those companies.
Now let’s look at just a few charts that apply to the situation. First, the US-China trade balance.
(credit US ITC)
Here are the relative sizes of trade between the US and China, and the proportion of trade the currently-proposed tariffs would affect.
(credit: US Census Bureau)
Here is an overview of the products targeted by the proposed new US tariffs.
(credit: Office of the United States Trade Representative)
We could go on for pages with charts and info. But as you’ve probably heard a lot in the news lately, we decided to give you some missing pieces that can help you fill in the blanks.
Above all: Keep in mind that nothing has actually happened yet. So far it’s all talk. This is a consistent Trump strategy – come out with a lot of bluster and swinging of fists, then negotiate from there. It’s an old negotiation tactic that generally wins when the one doing it actually has the upper hand.
If the other side is calm, rational, and holds winning cards, then this strategy typically fails. We’ll see how the trade war turns out this time; of course we’re hoping cooler heads prevail, some rational adjustments are made in trade between the two countries, and life continues without a lot more angst.
Signed, The Gold Enthusiast
DISCLAIMER: No specific securities were mentioned in this article.