The US has announced that it will be imposing $50 billion in tariffs against China in what is likely to be the first major act in a trade war between the two global powers.
The 25% tariffs apply to almost 1,100 different Chinese exports, including aerospace, auto, robotics and manufacturing.
US President Donald Trump has justified the tariffs by saying that China is taking advantage of the US by running a trade surplus and stealing the intellectual property and technology of American businesses.
The US currently exports roughly $187 billion worth of good to China while importing $524 billion.
Trump’s goal is to lower this $300 billion deficit to $200 billion by 2020, which is only possible by reducing imports or increasing exports.
Inaccurate Totals and Expectations
This deficit, however, is halved when value-added goods are taken into account.
This essentially means that the component parts of a product are shipped to China for assembly and then exported back to the US. Meaning China gets credited for the full price of the good, while only profiting from a fraction of it.
Furthermore, as China’s middle class continues to grow it will begin demanding higher-value US manufactured goods which is expected to raise US exports to $520 billion by 2030.
It is likely also to late for the US to do anything meaningful on the intellectual property front, as China’s domestic firms are rapidly closing the technological gap.
A trade war between the two nations would likely result in increased prices for American consumers.
Responding to Tariffs
China has responded to the announcement of US tariffs by saying they will impose equivalent tariffs but mentioned that they have no interest in a trade war but is prepared to fight back.
This comes after the European Union voted on Thursday to retaliate against US tariffs on Aluminium and Steel with their own duties of $3.3 billion.