Trump and China are higher tariffs the solution?

This weekend, Trump floated the idea to put additional duties on another $325 billion in imports from China, which would result in a tax on most, if not all imports from China.  

On Monday, the president tweeted that the US had been “losing” $500 billion a year on trade with China.  “Sorry we are not going to be doing this anymore” his tweet said.  

New Tarrifs

Trump is threatening new Tariffs against China, as he believes China reneged on promises. US Trade Representative, Robert Lighthizer said “Over the course of the last week we have seen an erosion in commitments by China. That in our view is unacceptable.” 

He said China had tried to change the context of the agreement between the two countries, as they were getting closer to the final stages.  US officials have become frustrated by China’s refusal to change its laws as parts of the deal as per their previous discussions that were agreed upon. 

US Treasury Secretary Steven Mnuchin spoke with reporters and advised the negotiations were 90% complete but Chinese negotiators were trying to “go back on language that had been previously negotiated.  This was very clear language that had the potential of changing the negotiations dramatically.”

China’s top trade negotiator, Liu He, is on his way to Washington D.C. for further rounds of talks to seek out solutions to resolve the ongoing tariff issues with US trade officials. 

Trumps focus is on increasing tariffs in two specific areas: 

  1. Increasing existing tariffs from 10% to 25%
  2. Adding addition tariffs on all imports from China

The US Economy

The increase in existing tariffs will affect about 84% of businesses importing backpacks, briefcases, and luggage.   

Brands selling their products made in China have been increasing their prices on a daily basis to address these added tariffs, which mean higher prices for the end consumers.

Trump administration officials said on Monday, that the administration would move forward to impose new tariffs, which include but are not limited to apparel and footwear.  Rick Helfenbein, president and CEO of the American Apparel & Footwear Association says these new tariffs will hit the core of Apparel and Footwear importers. 

Customers with existing orders with Chinese suppliers will now have additional tariffs to pay when importing into the USA.  Many businesses have complained about this sudden increase and new round of tariffs as it affects there business on any existing orders already placed in China.   

US Buyers are now forced to seek suppliers outside of China to remain competitive but many other countries don’t have the experience or capacity to properly fulfill on orders.  

This is a major problem for US businesses buying from China.  Additional capital must be spent to source new vendors, qualify, validate, vet, and on-board new suppliers.  This all takes additional time, manpower, and travel, which is an additional expense on top of the increased product prices. 

US businesses must manage the risk of bringing on new suppliers from other developing countries.  Determining if this supplier: 

  • Can accept this order
  • Produce this product at a comparable quality
  • Has the production capacity to fulfill on the order
  • Or will they outsource the order for support from factories that are not recognized by US buyers

There is the additional challenge of raw materials most of which come from China that are exported to developing countries to produce the products that are being exported from their country to the United States.  This requires additional handling, shipping, and costs during the manufacturing process.  

Conclusion

Approximately 75% of all businesses producing products in China have said that these tariff rules are having a negative impact on their business according to the National Association for Business Economics.    

Mr. Trump is playing hardball with China, giving them a sense of urgency to go back to previously agreed negotiations that were on track to end this tariff dispute.  

The Shanghai composite (stock market) tumbled 5.6% as stock markets around the world declined following the president’s tweet.   

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