Aug 4, 2020
How the Trade War With China Can Cost You
Consumers, manufacturers, and farmers in the U.S. all pay the price.
Amid the coronavirus pandemic and international protesting for racial justice, America’s trade war with China rages on, sometimes under the radar.
The latest news has more symbolic importance than strictly economic: On July 21, the Trump administration ordered China’s consulate in Houston to close to “protect American intellectual property and Americans’ private information,” according to US State Department spokeswoman Morgan Ortagus. She did not elaborate on specifically what data was in question. Chinese officials in the consulate responded to the closure by burning confidential documents, with smoke visibly rising from the building.
Five days later, China retaliated by closing the American consulate in the city of Chengdu in condemnation of America’s move. The Houston and Chengdu consulates aren’t the biggest or most important, but their closings are a definitive sign that U.S./China relations are only worsening.
What’s a trade war, and why is this happening?
A trade war is when one country increases or implements taxes called “tariffs” on imports and occasionally exports from a particular nation. When that nation retaliates with tariffs of their own, we consider this a trade war.
The Trump Administration began the trade war in 2018 because it believes China isn’t playing by the rules on the global market. For example, the Chinese government partially subsidizes some private companies, which allows those companies to produce goods at a lower selling point than their competitors and secure a valuable, lasting foothold in the market. China has also been accused of spying and stealing private data, most recently in the form of coronavirus vaccine developments.
The Trump administration doesn’t want to rely so heavily on a global power it can’t trust or control. But instead of going through the World Trade Organization to solve its problems, it chose to start a trade war.
President Trump also ran on an “America First” platform, which aims to advance the interests of U.S. manufacturers, in part by withdrawing from trade treaties and prior trade agreements. In the past few years, the U.S. has put tariffs on foreign steel and aluminum, not only from China but also Canada and Mexico. It has also taxed solar panels and washing machines, primarily from Asia.
Who does trade war affect in the U.S.?
This directly affects farmers, steel workers, and manufacturers who would typically ship their goods to China, but due to high tariffs, have lost clients there. Soybean farmers were an example of this, and the Trump Administration even bailed them out to the tune of $12 billion in 2018. In fact, the U.S./China soybean market was so disrupted that China made a soybean exemption last September.
The trade war also affects anyone who imports goods or products from China. Due to the increased tariffs, they’ve been paying more for their supplies, and/or have to make due with different, less-than-ideal products from somewhere else. One third of American small businesses may have been negatively affected by the trade war. And all together, American companies’ stock prices may have lost as much as $1.7 trillion due to this trade war.
Finally, the trade war affects American consumers, since businesses need to increase prices to pay for tariffs. In 2018 and 2019, the average cost to American households was an extra $650 per year, according to Chief U.S. Financial Economist for Oxford University Kathy Bostjancic. With additional sanctions added in 2020, that number has jumped to $2031 per year, according to the National Foundation for American Policy.
Sorry to say: It’s unknown. So far, China has been comfortable retaliating in kind to The Trump Administration’s penalties, but not escalating them. Relations are at a low point now, but this could change based on upcoming presidential election results, and/or a change in strategy from either side.