The Latest in the Trade War between China and the US
August 2, 2019
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As key players in the global economy, China and the US have been at odds with each other since early 2018 when President Donald Trump imposed $50-60 billion tariffs on a variety of goods to try and reshape the flow of trade. His intention was to “shrink the 2017 US trade deficit of $566 billion, boost US production and increase manufacturing jobs.”
However, since then, tariffs have grown and a trade war has evolved affecting most goods imported from China and potentially your small business.
A lot has happened between 2018 and now. According to an analysis by the China International Strategy Review, US-China ties are expected to “continue on a downward slope after years of heightened tensions.”
As of July 29, trade talks resumed with opinions on both sides assuming that as the US approaches the 2020 elections, any chance of major transformation involving tariffs, technology, and trade between the US and China would shrink significantly. The NY Times even reported that “a sense has emerged in China that the country can afford to wait for a better trade deal from the Trump administration, or from another president.”
However, on August 1, just three days after talks resumed, Trump vowed to place a 10% tariff on $300 billion worth of Chinese imports beginning in September. The news shocked both the Chinese and US economy, and marks an abrupt end to a truce in a year-long trade war that has slowed global growth and disrupted supply chains.
According to CNN, on August 2, US stocks opened in the red, overshadowing a healthy July jobs report that was in line with expectations.
Here’s a look at a few key takeaways:
- The Dow opened 0.3%, or 70 points, lower.
- The S&P 500 kicked off 0.4% lower.
- The Nasdaq Composite opened down 0.7%.
Energy stocks also plummeted after US oil prices went down 8%. Its lowest level since 2015.
What is a tariff?
According to Investor.com, a tariff is simply a tax on imported goods. They are often created to help with domestic production and jobs. Their purpose is to limit or reduce the amount of goods imported into the country. Essentially, making an import more expensive can improve the chances of producing that product domestically.
When tariffs are imposed on imported goods, the costs raise for everyone. Consider tariffs imposed on bicycles for China. When a retailer like Walmart tries to sell the same imported bike there is now an added 10% tariff, meaning both Walmart and the consumer have to meet those costs in a 50/50 split.
Like a bargaining chip, countries also can impose tariffs or raise tariff rates for trading partners in order to get those nations to reduce tariff rates or other trade barriers. This is a prime example of what is occurring between the US and China at the moment.
With this latest announcement from the US government, the trade war shows no signs of slowing down. In fact, it has grown exponentially to even include technology mitigations, like Trump banning Huawei products.
The technology battle
One huge concern that’s unique to this war is cyber security. According to the SCMP, this is a globally sensitive issue that is at the heart of the trade war with the US. CNET reports, “The core issue with Huawei has been concerns about its coziness with the Chinese government and fears that its equipment could be used to spy on other countries and companies.”
Although Trump is at the helm, politicians from both sides have warned about the national security threat of permitting further sales to Huawei.
What does this all mean?
As a small business owner, if you’re not feeling the effects of this news already, you will be. Even big US companies whose performance have faltered are citing tariffs and trade tensions as a reason.
As was witnessed with the stock markets, the US economy will need to make some major adjustments to make up for the changes being imposed because of the spat between the US and China. China on Friday said it would not be blackmailed and warned of retaliation.
For small businesses affected by the ongoing trade war, Veem is offering a relief program that gives small businesses $1000 to help them offset added costs because of tariffs.
We're giving $10,000 to businesses affected by tariffs. Let us help you, here.