Why 25% instead of 10%? That’s twice of the initial tariff level!
On July 10 2018, Trump seeked to impose 10% on thousands of Chinese imports. While the tariffs would not be imposed until after a period of public comment, the proposed level was then raised to 25% by Trump – this could escalate the trade dispute between the world’s two biggest economies.
Economically speaking, we know that by raising its tariff to a higher level simply serves as a motivation to motivate domestic producers to increase production of their output. This results in higher consumer prices, higher producer revenues and profits, and higher government revenues which make tariffs a way to make transaction from consumers to government treasuries effectively.
However, having tariffs begets strong consequences: 1) Cost of production for American companies increases 2) China will retaliate in response.
There are some opinions on the real motive behind imposing tariffs on China – it is more than just attempting to save its own country.
According to a Vox article:
“Trump is actually trying to increase the stakes to punish China for allegedly unfair technology transfer practices. In Trump’s rhetoric, however, it’s more like a comprehensive attack on America’s $300 billion (he, wrongly, says $500 billion) trade deficit with China.”
A Canadian journalist,Daniel Dale, also shared his opinion on Twitter.
Why was the trade tariff imposed in the first place?
According to Donald Trump, this was the key reason why they were imposed in the first place:
“Any country that devalues their currency to take unfair advantage of the United States and all of its companies that can’t compete will face tariffs and taxes to stop the cheating.”
So how is this 10% tariff currently affecting the U.S?
Tariffs are already affecting many American businesses, regardless whether they are big or small,
Here’s a snippet of some of the large and widely recognizable companies that have been affected by the 10% tariff that has been imposed. (according to their industries)
Companies that are negatively impacted are mainly from Automotive, Energy and Consumer Industry such as Daimler, BMW, General Motor, Ford, Steve Madden, SunPower and Plains All American Pipeline due to higher costs in tariff-related products.
However, there are some companies in the energy sector that are positively impacted are such as Covanta, Saudi Aramco.
For Covanta, tariffs on imported steel has helped to boost its revenue forecast for metal it recycles from waste by $10 a ton, to $145-175.
As for Saudi Aramco, butane and propane price rises as Chinese companies are now buying more of LPG from the Saudi-state run producer while cutting imports from the U.S.
How will a 25% increase affect US and China?
Without a doubt, the Chinese has to appear strong, they can’t just cave into tariffs that’s slapped by the US. Many might say that Chinese are the ones that have the most to lose from all of this, while some say otherwise.
Here’s a glimpse of the current tariffs are being imposed by both China and US
|China’s Tariffs on US||US Tariffs on China|
According to Maria LaMagna and Jacob Passy in a Marketwatch Article,
“However, such tariffs would likely hurt U.S. farmers and other producers who rely on overseas markets to buy their supplies. Trees that produce nuts take years to grow and become ready to go to market, said David French, the senior vice president of government relations at the National Retail Federation, a trade association.”
There could be some ripple effects in the labor market.
If past tariffs are any indication, the latest trade disputes with China may not end well for American workers. After President George W. Bush’s administration imposed tariffs of up to 30% on steel in early 2002, roughly 200,000 workers in the U.S. manufacturing industry lost their jobs, according to a report from the Consuming Industries Trade Action Coalition.
To put that in context: The steel industry itself only employed around 197,000 people at the time. And researchers from the Peterson Institute for International Economics estimated that only 3,000 to 10,000 jobs in the steel industry were saved by the tariffs.
“Repeating this again isn’t going to change the outcome,” said Kent Jones, an economics professor at Babson College, a private business school in Wellesley, Mass.
China’s previous list of retaliatory-tariff proposals prompted concern among citrus and nut farmers who are afraid that they won’t find alternative markets for the goods they produce to make up for lost Chinese business, the Fresno Bee reported.
Which sectors in Singapore will most likely be affected?
The potential consequences and impact that Singapore might face in the event of a global trade war on will most likely applicable to a small set of products which include solar cells, modules, washing machines, steel and aluminium.
However, many tariffs do not directly affect Singapore as they would have spillover impact due to Singapore’s role in global supply chains. Presumably, the net impact on the Singapore economy is “less easily quantified given the fluidity between US and China’s tit-for-tat responses”.
If an escalation of the trade conflict were to arise in the future, this could result in a vicious cycle tit-for-tat measures between major economies. In this case, the impact on investment and global consumption on top of the disruption to trade flows will significantly impact Singapore’s open economy.
However, Singapore has strong trading networks and diversified sectors that will allow companies to steer away from disruptions and seek out new opportunities and alternative suppliers and demand markets.
See what other investors are currently saying: (click on the view now button)
InvestingNote is the first and largest social network for investors in Singapore. Find out more about us here.
Check out our upcoming Free Seminar here.
Disclaimer: All research reports are of the analysts’ personal opinions and do not in any way reflect InvestingNote’s official opinion. InvestingNote does not issue a buy or sell recommendation on any security, and any research paper published by The Signal Blog is purely for informative purposes. This research is based on current public information, but we do not represent it is accurate or complete, and it should not be relied on as such. The information, opinions, estimates and forecasts contained herein are as of the date hereof and are subject to change without prior notification. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual InvestingNote users. InvestingNote users should consider whether the information in this research is reliable, and suitable for their particular circumstances and, if appropriate, seek professional advice. The price and value of investments referred to in this research and the investment income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments.