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Buckle Up, People. The Trade War Between the US and China Has Begun.

July 10, 2018 in Economics

By Ryan Bourne

Ryan Bourne

Last Friday, President Donald Trump imposed $34bn worth of
tariffs on Chinese goods, with China responding in kind.

The US government mainly targeted intermediate products, such as
vehicle parts, electrical components, and machinery. But this could
be just the start.

A second round of $16bn tariffs is supposedly in the pipeline
for August. Beyond that, the President has even threatened tariffs
on Chinese goods of up to $200bn in the coming years.

We are facing an unprecedented escalation in US trade barriers
for the post-war era. Dartmouth University trade historian Doug
Irwin has called current policy “the biggest application of tariffs
by the US and affecting US trade” since the Great
Depression-era.

But listen to the President’s team and supporters, and you will
still notice a glaring contradiction in their justifications.

Buckle up, people. The
trade war between the US and China has begun.

On the one hand, they argue that tariffs are designed to bring
other governments to the negotiating table to reduce their own
tariffs on US goods.

On the other, they claim that the tariffs are actually good for
the economy, because they will increase domestic investment and
lead to reshoring of supply chains and manufacturing
activities.

Last week, German Chancellor Angela Merkel
suggested that she would be open to reducing EU tariffs on cars,
following Trump’s threats to raise America’s. This was celebrated
by Trump supporters as an example US strength (read, threats) being
used to liberate trade worldwide.

In this view, the President is merely seeking to use his bully
pulpit to open up highly protected foreign sectors. He’s not a
protectionist at all, but wants free trade on a level playing
field.

Yet when it comes to the tariffs on steel and aluminium, the
administration’s line appears completely different. Indeed, these
tariffs were justified, at least initially, on national security
grounds, and not because they would “open up a negotiation” about
tariff reduction elsewhere.

Trump adviser Peter Navarro has even celebrated (rather
dubiously) that the tariffs have led to a new aluminium mill in
Kentucky and the restart of steel-making facilities in
Illinois.

He claims that these measures are “pro-worker”, and appears
completely indifferent to the impact that raising the price of a
key input will have for the 6.5m workers in industries which
consume steel.

This is not the line of someone who sees tariffs as a temporary
and necessary evil to compel a more liberal trading environment
from others.

So what is the real view of the administration? Well, the signs
are not great.

Everything from Trump’s obsession with economically meaningless
bilateral trade deficits, through to his constant focus on
manufacturing producers rather than consumers, suggests that
“exports good, imports …read more

Source: OP-EDS

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