The amount of global trade has increased rapidly within the past few decades. Many important exchange networks have formed between countries. One of the biggest trade circles established in recent times is that between the United States and China: 21.4 percent of imported goods to the US come from China, which in turn is 23 percent of Chinese exports. That makes the US China’s number one export destination. Meanwhile, China gets 7.3 percent of its imports from the US totaling to 8 percent of US total exports. In short, both countries highly depend on each other. Despite this, 2018 marks the start of a trade war between the two countries.
It all began with U.S. tariffs on Chinese electronic components and metals—most notably steel and aluminum. Said aluminum rate can get as high as 113 percent of the cost, depending on the company, though it usually is around the 33 percent mark. Interestingly, computers and cell phones were left out of the initial bill. The tariffs, based on the average amount of exports, would total to 50 billion in US dollars. According to the US government, these taxes were placed due to China heavily subsidizing production of certain metals.
The tariffs were great news for American metal companies, particularly steel workers, who hope this will be incentive for more metal production at home and job creation. However, many people were worried the toll would have greater repercussions.
Those people were right.
Initially, the Chinese government responded by placing tariffs on goods like pork and wine. Soon they turned to taxing industrial scraps including a massive tariff on chlorobutyl rubber exported from the US, European Union and Singapore ranging from 26 to 66.5 percent. It might seem like an odd choice at first. However, the United States exports the majority of industrial scraps to China and Hong Kong, including two thirds of its total plastic scraps. Chinese companies then use these scraps for manufacturing. There are plans to tax an additional 16 types of rubber, plastic and industrial scraps by the end of 2018 and another 16 by the next.
Not only does the scrap toll cause issues for US companies who are used to selling their parts to China, it hurts Chinese manufacturers. With less scraps, they have less material to use for production. This in turn wraps around and hurts American retailers who buy said Chinese products. Since there is less material available, less goods will be produced and the price will go up. So if your company buys goods from China, it may be more difficult to obtain them.
The U.S. national government, upon being challenged, considered an additional 25 percent tariff on over 1,300 goods—equating to roughly $100 billion in tolls—if they are shipped to the U.S., regardless of country. Other countries are able to negotiate a temporary exemption from the tariff which can be renewed every few years. However, the intention is clearly to put more tariffs on China. The current list is unspecified, but is almost guaranteed to affect mobile phones, computers, clothing and shoes. If it does, the proposed bill will become a huge problem to American retailers. $39 billion in apparel imports to the U.S. come from China and another $137 billion in computer and communication equipment, mostly in mobile phones and computers. This change won’t be a big deal for large corporations as they can simply put more money in other manufacturers. However, for smaller businesses it’s very difficult to switch production to other places.
Likewise China has proposed a 25 percent tax to 100 different U.S. goods. Some of these goods include cars and soybeans. The soybean toll is already causing damage despite not even being in effect. The U.S. is the country that provides the most soybeans to China coming in at $12 billion. If your company works with or sells soybeans, be prepared for a rough season.
All of these trade disputes, if they are to go through, are estimated to cut into the global trade growth rate dropping it from three percent to 2.5 percent. And that’s supposing no new rates are proposed.
The only potential benefit is that—if and when an end to this nonsense occurs—one of the negotiations may be for China to ease up on its policy requiring foreign technology developers to pair up with local ones and share all their intellectual property. Until then, be prepared for the bumpy road ahead and read as many updates on the situation as you can.
Rachael Ruszkowski is a student at the Bergen County Technical High School in Teterboro. She serves as a contributing editor for Meadowlands USA.