President Trump said in a series of Thursday August 1st, 2019 tweets that 10% tariffs on the remaining $300 billion of U.S. imports from China will begin September 1, accusing Beijing of reneging on a series of promises in this year’s ongoing trade talks. Trump’s latest broadside on China raises the fear that the trade war is the “new status quo.” When will the current China trade war end? The longer-term impact could be that the collective business psyche has changed for good. Is this not what many people wanted – buy less from China and make more things at home?
In dollar terms, the latest impact on the U.S. economy is muted, about one-tenth of a percentage point for GDP. However, 2019 Q2 earnings season hasn’t been kind to S&P 500 companies that generate more than half their sales outside the U.S., with profits down 13.6% from a year ago. Retaliation from China could come in a number of forms, including tariffs on U.S. goods and pressure on American companies operating there. Looking at the trade balance charts, it appears to News Forecasters that the U.S. is losing the trade war for now.
It has been no secret for the past 30 years we have seen the rise of China. China’s success has come at the expense of the U.S. middle class and the manufacturing jobs which has been gutted. This is one of the key reasons Trump got elected in the first place. Trump has been mostly correct when looking at the WTO trade-weighted average tariffs, America has certainly been the suckers. Click here for an interactive map to show who is playing what in terms of the trade-weighted average tariffs. Chinese tariffs are nearly double the U.S. on a trade-weighted average basis.
China really has two choices. Submit to Trump’s trade war demands, and begin to unwind the 30 years of success which has been largely due to American manufacturing labor arbitrage. Or, take the hit on their own economy short term, hoping for a better-negotiating partner in the future, in a 2020 presidential loss of Trump. There has already been much discussion of foreign involvement in American election rigging. In fact, China is doing this already. Most of their retaliatory tariffs have been targeting U.S. agriculture and Midwest manufacturing, much of Trump’s political base. If the global economy does start to tank on global trade fears, both China and Trump may have to rethink their positions.
News Forecasters believes that China will do one of two things. Wait for Trump to capitulate to them (not likely), or wait to see if Trump really wins in 2020. If Trump wins in 2020, they may need to consider capitulating to Trump’s demands. So the trade war is not likely to end soon. In any case, despite the cries of foreign interference in U.S. elections, China will be very much a player in this coming 2020 U.S. presidential election – they have a lot at stake.