The power play of threats and media coverage is on again in the U.S v. China trade war, pitting the world’s two largest economies against each other. Each nation has thrown out financial tariff numbers and has made return volleys. Experts speak all day-every day on how this will affect everything from sliced bread to nuclear missiles. The latest back-and-forth came in an announcement on the 17th, where President Trump ordered his administration to levy 10 percent tariffs on about $200 billion in Chinese goods on Sept. 24th, and to increase the rate in January to 25 percent if Beijing refuses to offer trade concessions.
Beijing retaliated against U.S. tariffs on Tuesday, saying Trump’s decision to place duties on more than half of all Chinese imports had undermined efforts to reach a negotiated settlement to resolve the countries’ trade war. Chinese officials said that it was imposing tariffs of up to 10 percent on $60 billion of U.S. imports, to take effect next Monday, as it expressed concern about the prospect of a deal with Washington.
Concerns regarding the GDP of China may take another hit, as the tariffs will initially cut the number by 0.5 percent. The effort to itemize products that will be pursued by tariffs is meant to have the least negative impact on the American consumer. According to Commerce Secretary Wilbur Ross, “We were trying to do things that were least intrusive on the consumer. We really went item-by-item trying to figure out what would accomplish the punitive purpose on China and yet with the least disruption in the U.S.”
The innuendo of Chinese action against our farmers, industrial workers and others was met with contempt by President Trump. The president warned Beijing against such action, writing on Twitter, “There will be great and fast economic retaliation against China if our farmers, ranchers and/or industrial workers are targeted!”
China is now feeling the pinch in its capital markets, as we have seen in the volatility in our own U.S. markets. China’s sinking stock market reached an unwelcome milestone, with the Shanghai Composite Index closing at the lowest level since 2014, erasing the last traces of its recovery from a boom that turned into a $5 trillion bust. The trade war and poor company fundamentals are stoking the flames of the fall. Toshihiko Takamoto, a Singapore-based money manager at Asset Management One espoused, “It’s hard to buy Chinese stocks even if they sell down, given the trade war and weak company fundamentals. Even if the valuation gets cheaper, there’s a reason for that. It’s hard to find factors that would spark a sharp rebound.”
The weakening of the yuan again comes up as a remedy of the Chinese to attempt to circumvent some of the tariff hits. China’s currency has fallen almost 7 percent since the end of March amid speculation the government was trying to counter the impact of U.S. tariffs.
If the rhetoric fails and the trade tariffs continue, it is likely to go on for some time. It isn’t always easy to make America great again. The saber rattling with China will continue as long as Trump is around. One thing, the main thing, that never seems to come up in this conversation, is that the U.S. was the whipping post of China for many years, while previous administrations just stood by and watched. Didn’t want to hurt anybody’s feelings. In addition, as much as you want to think that China has come of age because Chairman Xi wears Brooks Brother’s suits, we are still polar ideologues at the end of the day. Well, guess what, it looks like some communist emotions may be ruffled.