The Early Effects of a US-China Trade War

By Vinay Trambadia, Opinion Writer

The stock market was sent tumbling earlier this week in part because President Trump and China’s actions have led to the beginning of a trade war. On March 1st the Trump Administration announced $50 billion in tariffs due to a $375.2 billion trade deficit in Chinese exports in 2017 and a months-long investigation into IP theft. These tariffs focus on 1,300 products ranging from steel to televisions although the list is not final. In retaliation, the Chinese Ministry of Commerce announced its own set of tariffs of $50 billion worth of US exports. Their tariffs focus on soybeans, cars, and other goods. This idea of equivalent “tit-for-tat” actions is just a part of the “negotiation” as stated by Larry Kudlow (the Chief white house economic advisor).

I agree to some level that this is a smart and forceful negotiation tool. However, the short-term and long-term effects of keeping these tariffs could be detrimental to the US and China. US corporations find many of the materials and cheap labor in China and would have to turn to the second cheapest option (wherever that may be) which could end up being more expensive than predicted.

One could say that the tax cut from last year would help offset any potential corporation spending increases, but I assumed that most corporations would reinvest the saved money into human capital and producing better goods and services. The approximate $1 trillion tax cut over the next decade, $100-150 billion in the next year should not come as a shock. But $50 billion in tariffs comes dangerously close to the saved money just next year. Some have already expressed the effects on the American people even before the tariffs go into effect. Republican Senator Joni Ernst from Iowa publicly stated that President Trump’s actions have hurt the Midwest and hopes to speak with President Trump about it directly soon. Iowa is one of the largest soybean producing states which will be greatly affected in the tariffs set by China. Republican Senator Chuck Grassley, Iowa’s other representative, took a stance pressing that President Trump will be responsible for owning up to any economic hardship that any American might have to face because of his policies.The American Soybean Association estimated $1.7 billion hit to value of soybean crops. Because of this, Soybean futures and corn futures slid 2.2% and 1.9% respectively on April 4th.

If we ignored the markets for just a second, it’s apparent that if crops will take on heavy losses, eventually so will many more exporting products will too. We can’t just ignore the possibility that tariffs could be increased over time to be used as leverage and more products lose value. This all falls into the hands of the Trump Administration and how they handle themselves over the next few months in the negotiations.

However, I will agree that some good might come out of it, because of President Trump’s actions, South Korea has agreed to renegotiate their main trade deal with the US and China will officially come to the table to discuss opening their markets to US businesses. Furthermore, according to recent news, a few other countries have started trade talks with the Trump Administration too. While Iowa may suffer in the short-run, I can only hope that Trump has a long-term strategy that helps us in the future.

This is just the first step in a long series of conversations that need to happen. The only thing we can hope for, is that the next few months comes with good discussions focused on bettering the US and the world.

     

A version of this article appeared in the Tuesday, April 10th print edition.

Contact Vinay at

vinay.trambadia@student.shu.edu

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