For a year now, the two largest economies have been engaged in a trade war that has slowed economic growth in both countries but has also been detrimental to the global economy.
People are rarely cognizant of the economy’s intricacies. For Americans, the trade war with China had been rather abstract for a long time: an economic power play with a distant country, visible on cable news TV but not in daily life. With the new punitive tariffs President Trump implemented the previous weekend, the trade war effects may all of the sudden become painfully tangible for consumers, who, one must not forget, are also voters.
So far, tariffs were only imposed on industrial goods, aluminium and steel. And while the impact had been felt by America’s major manufacturers, it certainly was not the general public’s main concern.
For the first time now, Chinese products that are part of everyday life (e.g. suits, shoes, T-shirts and toiletries) will increase in price. With the tariffs worth 15% introduced on Sunday, goods of more than €100 billion will be impacted. The tariffs on consumer goods have intensified the dispute severely and certainly upped the ante.
Consumer good, everyday essentials had largely been spared so far. Existing tariffs accounted for less than 33% of consumer goods imported from China. In the future, however, it will be almost 70%. And if President Trump introduces further tariffs in December, the value would rise to 99%.
It could only be the beginning of a long, punitive year for consumers, however, as the next step is already in the making. President Trump seeks to further raise tariffs on additional consumer goods from China, worth $160 billion by mid-December if the two sides cannot find common ground. It would add a new quality to the dispute, as technology such as computers and mobile phones were subject to the tariffs. These tariffs, combined with the previous ones, would affect almost all Chinese imports, valued at approximately $540 billion.
And the bill for the consumer is not insignificant. Congress estimates that the conflict with will cost every American household an average of $580 by the end of the year. While JP Morgan Chase assessed the newly implemented tariffs will cost each household at least $1000 per annum. Whatever the actual figure may be, Trump’s claim that China carried the burden has now officially been contradicted. It will not change the White House’s narrative of China continuing to take advantage of the United States.
In the meantime, China continues to retaliate. The country imposed countervailing tariffs on imports from the United States on Sunday. This included 10% on imports of meat, fruit, vegetables and leather goods. 5% on soybeans, dairy products and mushrooms. The goods in question are no coincidence but rather a strategy. Agricultural products had also been previously targeted. The impact is felt mainly by American farmers. Farmers, who are Trump supporters in the majority. To reinsure the farmers his loyalty, Trump protected the farmers in the form of an aid package of $12 billion.
By now, even the stock market has been impacted by the dispute and with it the American economy – Trump’s weapon of choice in pre-election rhetoric. And while the president continuous to display optimism regarding further talks between the countries which are supposed to lead to an acceptable trade agreement, Beijing does not seem to be in a hurry. Even though its economy has slowed down also.
The trade war has already been detrimental to both countries, however, circumstances for their respective presidents may make the difference in the end. For one simple reason: President Trump’s job security and longevity cannot be compared to Jinping’s – for obvious reasons. Which is why this trade war had not been winnable from the start. It is a peculiar position for President Trump. He cannot afford to lose face and fold against President Xi Jinping in the dispute. However, he cannot afford to make life more expensive for Americans either.
Trump will not be inclined to jeopardize his reelection. And once his base begins to feel the impact of the tariffs, the government will be forced to change course. Which is why this dispute has now reached its apogee.