The USA is pretty worried about trading and military activities of Beijing. So, the country had to take some “defensive measures”, as they say. That’s why, the Trump administration is threatening to double the tariffs on goods imported from China. This is made in order to limit the economic and the military activities of Beijing.
Both countries weren’t able to ease the dispute around trading conditions. The Trump administration specified, that tariffs in Chinese imports are already higher than billions of dollars, but it seems not to be enough, so the tariffs doubling is expected. They are expected to grow to the value of 25% instead of the current 10%.
Concurrently, the USA senate approved one more bill, called defense-policy bill. It imposes stricter security measures on Chinese corporate deals and increases tightens the measures on export control when in matter come USA technological developments that are to be sent abroad. In the bill, restrictions are mentioned on the Beijing cultural and military activities areas. The bill is going to be passed soon, and after that, Trump is, most likely, going to sign it into a law.
Trump has argued with some specialists about whether it is wise enough to start getting into conflicts with such major allies like Canada, Mexico, the European Union. Even the conflict with China is facing with opposition from wide public.
However, in the case with China, the matter is not only in the belief, that China used to get huge profits from the USA, but the issue is the growing military and technical potential of the country, and this is turning China into a significant USA military rival.
Moreover, the administration representatives believe, that the USA has an advantage in this trade war, because the economy of the USA shows all sings of growth, while the Chinese economy is slowing down its expansion. One more important factor that influences the economy condition is that China depends more on trade with the USA than the USA do. However, those are just the suggestions of the American side, and for now, they aren`t confirmed. The preliminary negotiations about the situation haven’t brought any productive solution, neither party is willing to make a step to the fruitful agreement, profitable for both parties. Additional negotiations aren`t planned for now.
The trading and political relation between the USA and China have been tensed when the Trump was trying to make something for leveraging of 376 bln USD trade imbalance, that existed at that moment between the countries. Trump even threatened to impose 505 mln USD of tariffs on goods that are entering the USA from China.
The tariffs in the sum of 34 bln USD have been applied already by the American side. Other duties set in the sum of 16 bln USD is planned for the next days. And, as Washington threatens, the next step is going to be even more harsh.
So, the first stage of tariffs increase was limited by 10% of tariffs only, but the second stage is coming, and within that increase, Trump is planning to increase the tariffs to up to 25%. The administration officials told that they will check the industry reaction on the tariffs increase, but in any case, the next increase is expected not earlier than in September.
The president administration didn’t explain or give any clear reasons for such measures. However, many people just believe that the main reason isn’t in the objective need to do so, but in the anger or Trump with China. And this is caused by the failure of the Chinese government to approve the merger of Qualcomm Inc, a USA company, with NXP Semiconductors, a Dutch company, and this prevented Qualcomm from reaching into new markets.
One more reason, as specialists believe, is the drop of yuan value by 6%, and the weaker the Chinese currency is, the cheaper are Chinese products in the global market, and hence, the more competitive they are.
It was even told by one of the officials, that it is not ok to devaluate the own currency for competitive purposes, but China wasn’t mentioned. However, many believe, it was addressed to China.
The planned tariff increase by the USA is going to influence the local as well as the global economy, and many believe, that would be not the most positive influence. The 25% tariff would boost the prices of the imported goods and exactly at the time when the inflation rates are growing. That fact should be considered by the Federal Reserve.
Fred Bergsten, the founder of the Peterson Institute for International Economics, tells, that the tariff increase doesn’t give anything to the USA. The only thing it does is adding to the inflation rates growth. As well, the increase of the interest rate should strengthen the US dollar, but this even worsens the trade situation for the country.
The founders and CEOs of some companies have already announced, that the tariff of 105 can be handled somehow, but the tariff of 25%… There is nothing to do with it, they will have either to close or to look for other suppliers.
Tariff increase can have one more consequence. Beijing might let the national currency drop even more, to stabilize the economy. But then, the trade battle might turn into a currency battle. And this means that the risks will be even higher.
Chinese analysts and traders insist, that China`s central bank isn’t causing the national currency to drop. It is rather letting the yuan slide naturally, in hope, that this natural process will allow to back up some growth for the national economy.
The People`s Bank of China can control the price of the national currency, they insist. It sets up the rates for yuan and in case of need it can use its foreign exchange reserves to help the currency out. But for now, the bank prefers the processes develop naturally.
Chinese authorities and regulators are in the alert condition, just in case if there are some very negative impacts of the sanctions on the economy.
The Trump administration insists, that the sanctions, they called the trade battle, have a double purpose: to balance the USA deficit, which now equals 376 bln USD, to 200 bln USD. The second purpose is to force China to change some of the country`s industrial purposes, especially those that make the USA transfer technological achievements to businesses located in China
For now, the measures taken are limited on tariffs only. the president administration has already imposed 34 bln tariffs on most Chinese goods, components and machinery. China, in turn, imposed tariffs on the main USA exports, mainly agricultural production.
Considering the further expected tariff increase from the side of the USA, for additional 16 bln USD, China has already announced, that it would take counter-measures.
Some American politicians get surprised how unified are lawmakers when it comes to China, but even they believe, that the consequences of a new tariff would bring the both countries to a negotiation.
However, some politicians and lawmakers insist, that they have been aware of all the consequences that the tariff increase would cause, including the economic pressure, and about the fact, that this increase will hurt more the American families and workers more than China.
Moreover, Chinese tariffs on farm and agricultural products from the USA will hit seriously the farming states. So, who wins in this battle, is still a good question. Considering, that China purchases about ¼ of the entire soybean crop in the USA, the USA can have rather more serious consequences from the own tariffs increase. And now, soybean is already one dollar and half cheaper than it was, and this is even before the official measures are announced by the Chinese side. So, American economists are worried.
Sen. Heidi Heitkamp insists, that the decision to increase tariffs for Chinese goods is a very bad decision and will seriously hit rural areas of the USA. For now, many politicians are talking about imposing restrictions to the powers of the White House to implement trade policies, but the bill has not gotten enough support yet, so, there is still hope.