Trade Tensions Increasing Again

The evening news would not be complete without a story about the U.S.-China trade dispute or the “trade tensions” between the two countries.

Despite the sensationalism, the U.S. remains the world’s biggest economy. U.S. exports to China are only 0.5 percent of GDP. For the world’s third-largest economy by nominal GDP, Japan’s exports to China account for three percent of its GDP in comparison.

As of 2017, China got $12.24 trillion of its GDP from exports to the U.S., according to the World Bank. The U.S. and China both have enormous economies that depend on exports and imports. It is China that depends on these exports the most.

China realized greater than seven percent annual growth between 2009 and 2017. In 2018, China’s economic growth slowed to 6.7 percent. China had a nominal GDP of $12 trillion in 2018, second only to the United States.

When you measure China’s, GDP based on per capita GDP, the country ranks 20th in the world. As of 2017, GDP per capita in China is only $15,308.

The president has been put-off by China’s historic record of intellectual property theft, currency manipulation, state-owned enterprises, and unfair trade advantage. He has imposed tariffs to force the Chinese government to take steps to right these wrongs and come to the bargaining table for honest discussions.

China has recently cut the value of its primary currency, the Yuan, by 12 percent as the latest instance of currency manipulation.

More Talks Ahead

The president has imposed tariffs on Chinese-made consumer electronics and machinery, along with many other products. Most recently, China imposed its own retaliatory tariffs on $75 billion of U.S. products.

China has just recently complied and indicated a willingness to return to talks. The newest round of tariffs has gotten their attention.

The U.S. exports more to Canada and Mexico than to China. China ranks number three in U.S. exports.

The domestic demand for products in China has fallen in recent years. China had attempted to pressure the U.S. by reducing its purchase of American corn. Japan stepped up and made up for the difference to help U.S. farmers.

Although the U.S. tariffs have had very little real impact on consumers to date, the impact they have had on the Chinese economy has been marked. The Chinese government is also dealing with pro-democracy protestors in Hong Kong, which has been a distraction from trade talks.

U.S. retailers, like Target, Walmart, Home Depot and Lowes have posted earnings per share (EPS) and revenue numbers that would contradict any suggestion of a negative impact on their businesses from tariffs through the end of August, as well as help dispel fears of an imminent recession.

In a recent poll, more than 25 percent of respondents said they planned to purchase discretionary items, an increase over the last seven years. These items are normally only purchased when a consumer has extra cash to spend.

So far, tariffs are mostly a bargaining chip that has hurt China more than the U.S. A quick resolution would be in everybody’s interest. In the future, the tariffs may begin to increase some consumer prices.