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Trump’s trade war with China: What to expect in the next year

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Donald Trump Xi Jinping
US
President Donald Trump, right, with China’s president Xi
Jinping.


Andy
Wong/AP Photo



  • A trade
    war
    between the US and China has
    been heating up for much of this year.
  • The trade war could continue to escalate over the next year.
  • The most recent set of US tariffs on
    imported goods from China are scheduled to rise at the start of
    2019, and both countries are threatening further protectionist
    actions.
  • Escalation of trade tensions could negatively affect the
    economies of both countries.

A trade
war between the US and China
has been heating up for much of
this year, and it could could continue to escalate in the next
year.

President Donald Trump’s administration has levied
tariffs on a total of $250 billion of imported goods from
China
. That represents about half of all imports from
China. 

The most recent round of tariffs, which came into effect on
September 24, levied a 10% tax on $200 billion of imported goods,

including several consumer goods
, like computers, furniture,
and tires. Those tariffs are scheduled to rise to 25% in January
2019.


China has retaliated
 by announcing tariffs
on $110 billion of US exports, and the country shows several
signs of being ready to escalate in response to continuing
tensions.

The
nascent trade war shows no sign of slowing down
, and the
situation could intensify in the coming months. After the recent
round of tariffs,
China called off planned trade talks with the US
, which
increases the likelihood of the taxes increasing in January.

Meanwhile,
Trump has threatened to levy tariffs on another $267 billion

of goods, which when added to the goods subject to existing
tariffs would exceed the total value of goods imported from China
in 2017.

Not just tariffs

Trade actions have also begun to move past tariffs. The Trump
administration
imposed sanctions on China
for importing weapons from Russia
under a law intended to punish the latter country for meddling in
the 2016 election.

The US is also
withdrawing from the Universal Postal Union
, a 144-year old
treaty that helps set international postal rates, over concerns
that the treaty unfairly advantages Chinese exporters.

China has stated that it does not plan to make concessions to the
US in the face of rising tariffs.
China’s minister for commerce Zhong Shan
said in an October
statement, “There is a view in the US that so long as the US
keeps increasing tariffs, China will back down. They don’t know
the history and culture of China.”

“This unyielding nation suffered foreign bullying for many times
in history, but never succumbed to it even in the most difficult
conditions,” he continued.

China also responded to the new US tariffs by
cutting its own tariffs on non-US goods
to help bolster its
economy. Edward Alden, a senior fellow at the Council on Foreign
Relations explained, “Cutting tariffs makes a lot of sense. If
you’re worried about strengthening China’s position in the supply
chain, if you cut tariffs — especially on intermediate goods —
that helps the competitiveness of company’s within China and it
helps keep down consumer costs at a time the tariff war is
driving them up.”

The move suggests that China is prepared for trade tensions to
continue for the foreseeable future.

Investors in the US  and China could be scared off


Jack Ma
The 1 million US jobs
Alibaba founder Jack Ma (right) wanted to create could be in
trouble.

AP

The escalating trade war could threaten Chinese and other
companies’ planned investments in the US. For example, in early
2017,
Alibaba founder Jack Ma met with then-President-elect Trump

and announced plans to promote up to 1 million jobs in the US by
opening up the Chinese ecommerce giant’s platform to small- and
medium-sized American businesses.

But
in the wake of the recently announced tariffs
, Ma told
Chinese news outlet Xinhua
that those plans would be scuttled. Ma said, “the promise was
made on the premise of friendly US-China partnership and rational
trade relations. That premise no longer exists today, so our
promise cannot be fulfilled.”

Ongoing uncertainty about trade over the next year could also
affect the decisions of American businesses and investors.

JPMorgan CEO Jamie Dimon
warned in a CNBC interview in
September that, even though newly taxed goods could eventually be
replaced by substitutes, confidence could be shaken:

Remember, people do other things. They have other supply
lines. But it’s a $20 trillion economy. So that is a negative.
The real negative isn’t that — it’s confidence, consistency. If
people start reducing investment, if people start moving their
supply chains around, that we have seen already moves the markets
a little bit.”

A prolonged trade war could also hurt the US stock market.
One of the biggest drivers of stock price appreciation is
corporate earnings growth, and companies’ bottom lines could be
hit by the new taxes.

Goldman Sachs
chief US equity strategist David Kostin
wrote in a note to
clients that an escalation of the trade war to include 25%
tariffs on all imports from China “could lower our 2019 S&P
500 EPS estimate by roughly 7% (from $170 to $159), resulting in
no EPS growth next year.” That could have a big impact on stock
prices.

The escalating trade war could also hurt China’s economy. A

JPMorgan analysis
found that if tariffs end up being imposed
on all goods trade between the US and China by sometime next
year, China’s GDP growth could be reduced by 1%. The bank
predicted that the economic damage would also hurt China’s stock
market as well.

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