This is early July, before this article went live, but my position is very clear. Both the United States and China imposed tariffs on goods worth $34 billion on Friday, July 6. This did not prevent the S&P 500 from continuing to charge until the record high set on January 26. In addition, the unemployment rate is at a historically low level, and the Fed will raise interest rates twice before the end of the year – all of which occurs in the recession of discretionary discretionary spending.
So, what about this trade war? Let us review it. Most people agree that the free trade of goods is best suited to all parties involved. Commodity prices will decrease, and those that cannot compete on price will lower the quality and thus contribute to the improvement of the goods. Everything went smoothly before protectionism and nationalism got rid of the ugly mind. It is difficult for commodities in some countries to compete on the basis of price and/or quality. On a global scale, world leaders in these countries do not hesitate to pursue national interests at the expense of others. In order to avoid the image of ugly Americans, we often put ourselves at a disadvantage. If our trading partners often have obvious advantages, then this is more obvious than trade.
According to the US Census data, except for South and Central America and Australia/Oceania, we have a trade deficit in each trade zone. In the past four years, it was only $3.314 billion and $14.38 billion. Compared with the deficit in the rest of the world, this figure is equivalent to the total of $310.44 billion, which is $844.66 billion, and the combined trade volume is $3.578 trillion. The following are the billions of 2014-2017 averages for most of the world:
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Canada: - USD 20.01
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EU: - $149.61
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Asia: - USD 547.49
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Africa: - $2.60
China is a good example. Aware of the huge economic benefits of its 1.38 billion consumers, they have made huge concessions from trading partners including the United States. When they do not ban certain US commercial departments, they restrict or manage business, impose tariffs on goods or force intellectual property rights. Property release. Note that this is a way; there is no intellectual property sharing.
These non-competitive business practices are unfair, but until now, American companies have accepted them without the laborious return of doing business there. That is Trump. What Chinese leaders need to realize is that they are not in a good negotiating position, and the longer they persist, the more harm their economy will suffer.
This is the reason. The leaders of the government economy are well aware of their history and realize that China's huge population will not endure harsh conditions forever. In order to avoid dissatisfaction, they have formulated a policy of economic growth expansion. According to Trading Economics, their GDP growth has averaged 11.7% over the past 10 years, but their armor is falling. From the peak of the national GDP growth of 19% and 24% from 2010 to 2011, the growth rate has steadily declined, sometimes even sharply. In 2015 and 2016, it was 5.56% and 1.14% respectively. It is no wonder that the central government has since worried that these concerns have been greatly boosted by increased global exports [including US exports], resulting in a return to GDP growth of 9.35% in 2017. The prospect of increased tariffs will increase the competitiveness of their products and conflict with these plans. The Chinese economy is struggling and their stock market has proved this. The smaller Shenzhen Composite Index entered the bear market in February, and the Shanghai Composite Index closed at Bear City on Tuesday, June 27. On July 5th, the index fell to -26.5% and -25.0, but has recently rebounded to -22.5 and -21.2 because the global market and the US market climbed simultaneously, so they were respectively %. This is still in the bear market, which will reduce the need for foreign investment. At the same time, the US gross domestic product has grown steadily, the economy seems healthy, and the stock market is approaching new heights. Knowing that he has more room for economic swing, Trump can extend the time of the tariff game. Moreover, he can cause more pain to the Chinese economy than we do.
To understand why, let's take a look at the transaction figures. The trade deficit with China averages - 358.68 billion in the past four years, showing an upward trend. Although US exports have reached $11-129 billion since 2012, China's imports have grown steadily from $31.5 billion to $375 billion. Last year, the deficit was 375.58 billion U.S. dollars, of which US exports to China were 129.89 billion U.S. dollars, and U.S. China imports were 50.547 billion U.S. dollars. Not only trade imbalances, but also tariffs. Before this year, the US tariffs on Chinese agricultural and non-agricultural products were 2.5% and 2.9%, respectively, while China's tariffs on US goods were 9.7% and 5%, respectively. Indeed, these have fallen by 14.1% from the average before China's accession to the World Trade Organization in 2001, but this is part of the price, and tariffs in some industries are much higher.
According to the International Trade Center trade map http://www.intracen.org/marketanalysis, the following are the top ten exports of US exports to China in 2017:
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Aircraft, spacecraft - $16.3 billion
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Vehicles - $13.2 billion
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Oilseeds - $13 billion
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Machinery - $12.9 billion
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Electronic equipment - $12.1 billion
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Medical, technical equipment - $8.8 billion
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Fossil fuels including oil - $8.6 billion
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Plastic - $5.7 billion
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Woodpulp - $3.4 billion
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Wood - $3.2 billion
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Total - $97.7 billion
Together they accounted for 74.8% of all exports in the year. Please note that in addition to oilseeds, mainly soybeans, the rest are non-agricultural products. But their tariffs are not the same, depending on the strategic level of the product. For example, Chinese cars cannot compete with American cars, so the latter's responsibilities range from 21% to 30%. Compare the highest 2.5% of Chinese auto imports to the US
This is friction. Chinese can only increase imports on these commodities, some of which have few suppliers outside the United States. Therefore, some published tariff increases are empty words, almost no teeth. For example, China announced a 25% tariff on aircraft, but not all aircraft - only those with an "empty weight" of 15,000 to 45,000 kilograms. Although it seems that China is targeting Boeing, it turns out that these regulations are only for the gradual elimination of older 737 production, and do not touch the large models of Boeing's majority transactions. China urgently needs to develop the aviation industry. It is expected that 7,000 new aircraft will be required in the next 20 years. With the full operation of Airbus, there is no choice but to turn to Boeing.
The same is true for most of China's agricultural products imported soybeans. China is the world's largest pork market and they need soy as a feed. It turns out that Brazil and the United States are the world's two largest soybean suppliers. Brazil has been increasing production for many years and now accounts for 57% of China's soybean imports. This is mainly at the expense of the United States, but Brazil has no ability to make up the remaining 31% of US soybean exports to China. Therefore, a 25% increase in planned tariffs will directly harm Chinese pig farmers.
Ultimately, the absolute size of the trade imbalance will be good for Trump. China faces a risk of 500 billion US dollars, while the United States has only 130 billion US dollars. China's fate is closed. That is to say, as long as Trump persists in raising standards while maintaining dissatisfied American businessmen. Historians may recall that during Reagan's tenure, a similar indomitable bar of improvement eventually led to Russia's surrender. It has been detrimental to its tariff restrictions, which does not help China.
We have seen the final outcome. Four days after the two countries raised their taxes equally, Trump announced a 10% tariff on Chinese goods worth $200 billion. After the announcement on Tuesday, July 10, China will not retaliate. Instead, China announced that it would fight back in other ways - perhaps by selling US Treasury bonds, which would overwhelm the mid- and long-term bond market, causing bond prices to fall and yields to rise.
Regarding the latter, Trump's victory will pay the price. Due to his success in China, Trump will continue to work with other trading partners to implement its trade standardization agenda. Although trade with the UK is fairly balanced, the EU's trade preferences last year were $173.58 billion and the transaction volume was $83.9 billion. Not only that, but E.U. has become accustomed to pursuing American technology giants that it cannot compete with. Think of Qualcomm in 2018, Google in 2017, Facebook in 2017, Apple in 2016, and Microsoft in 2013. Japan is also on the same boat. Our deficit against Japan averaged -68.59 billion in 2014 - 2017, compared with $204 billion in last year's trade of $68.88 billion. Although the government regulations of Prime Minister Abe have eased, Japan has a culture that hinders foreign investment, especially in the financial sector. In addition, they impose high tariffs on dairy products [up to 40%] and meat [38.5% on beef], which account for US$6.1 billion in US exports to the country. Trump made it clear that they were also in the game and they had fired Salvos.
Given the attitude of all parties involved, tariffs will be higher than before. This will increase the price of foreign goods in the United States and reduce its competitiveness. This, in turn, will affect the returns of our larger international companies. Our stock market may be adjusting at a high level, but I believe this will be a catalyst for the market downturn as investors look to the future and lower these stocks. In addition, import tariffs will inevitably lead to inflation. We are already at the Fed's 2% comfort level, so any visibility into rising inflation will incite the Fed to stop it by raising the federal funds rate beyond its current level. If China retaliates, they will encourage them to do so...
Orignal From: Trump won the trade war as the global market plummeted
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