Trade War between World’s Top Two Economies Escalates

23-05-2019
 

 

Trade War between World’s Top Two Economies Escalates

by Kamol Kamoltrakul

 

The ongoing trade war between the US and China has escalated. This is partly because of both leaders, Donald Trump and Xi Jinping, having their own internal political agendas aimed at satisfying their supporters and increasing their popularity. Some analysts say that at the end, consumers will bear the brunt as the tariffs will lead to price hikes of consumer goods.

 

Reuters was one of the first to report that on Friday, 10 May, the Trump administration raised duties on Chinese imports valued at $200 billion from 10% to 25%, after charging that China had backtracked on commitments it made earlier in the talks. The administration also hit $50 billion of additional Chinese goods with 25% duties.

 

These tariffs will impact a wide range of consumer goods — clothes, shoes, toys and electronics such as iPhones — that had mostly been exempted up until now. This could prompt steep cost increases that many Americans are likely to notice.

 

On Sunday, 12 May, Trump reiterated his view in a tweet, “We will be taking in Tens of Billions of Dollars in Tariffs from China. Buyers of a product can make it themselves in the USA (ideal), or buy it from non-Tariffed countries.”

 

In another tweet, he became almost hostile when he wrote, “I say openly to President Xi & all of my many friends in China that China will be hurt very badly if you don’t make a deal because companies will be forced to leave China for other countries. Too expensive to buy in China. You had a great deal, almost completed, & you backed out!”

 

China has now retaliated over the Trump administration’s latest tariff hike, continuing a policy of tit for tat. Following these moves, some stock markets around the world suffered their worst performances of the year with the SP500 index falling by 2.41% while NASDAQ fell by as much as 3.41% at closing on Monday.

 

 Not everyone agrees with the President, said Carl Weinberg, chief international economist at High Frequency Economics, a forecasting firm, as he pointed out that many goods made in China aren’t manufactured elsewhere. That’s why many U.S. importers have little choice but to pay the tariff.

 

Trump’s chief economic adviser, Larry Kudlow, said, “Both sides will pay,” explaining that China will suffer losses from reduced exports to the US, not from paying the tariffs.

 

Goldman Sachs told CNBC that the cost of tariffs imposed by Trump last year against Chinese goods has fallen entirely on American businesses and households, affecting consumer prices more than previously expected.

 

Meanwhile China’s Global Times tabloid said in an editorial on Monday, 13 May,  that the country had no reason to fear a trade war.  This comment was in response to reports in the media that the United States and China appeared deadlocked in their trade negotiations as Washington demanded promises of concrete changes to Chinese law and Beijing said it would not swallow any “bitter fruit” that harmed its interests.

 

This escalating war of words has worried the financial sector. Goldman Sachs said that the trade war’s impact on US consumer prices is now higher than previously expected, partly because Chinese exporters have not lowered their prices to better compete in the US market.

 

They were quoted by CNBC saying, “One might have expected that Chinese exporters of tariff-affected goods would have to lower their prices somewhat to compete in the US market, sharing in the cost of the tariffs.”

 

 

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