But first, what are trade tariffs?
A tariff is basically a tax paid on imports and exports of goods and services.
An imposing tax on an imported product would cause its price to increase, which results in a decrease in demand for imported goods. In relation, the price of local products becomes lower to the consumer.
The US Total Imports vs Dutiable Imports from 1821 to 2016 can be seen below:
The current US deficit as of 2017 is $500 billion. The US imports from China about four times as much as it sells to that country in goods as services, leaving Washington more room than Beijing to tax a greater share of bilateral trade. The U.S. trade deficit with China was $375 billion in 2017. The trade deficit exists because U.S. exports to China were only $130 billion while imports from China were $506 billion. The United States imports consumer electronics, clothing, and machinery from China. A lot of the imports are from U.S. manufacturers that send raw materials to China for low-cost assembly. Once shipped back to the United States, they are considered imports.
To give a rundown of similar events that happened, in 2009, past President Obama imposed a 35 percent tariff on tires imported from China, in an effort to boost the domestic tire industry, which was being overrun by less expensive Chinese tires.
The United Steelworkers Union (USW), which represents tire plant workers, had complained to the U.S. International Trade Commission (ITC) about a surge in Chinese tire imports that it said caused over 4,000 American tire workers to lose their jobs. From 2004 to 2008, USW said Chinese tire imports had increased by 215 percent. So much so that by 2008, 46 million tires in the U.S. were coming from China, compared to 15 million in 2004. Domestic tire production dropped by 25 percent.
After imposing tariffs, Obama declared he saved a maximum of 1200 jobs but the estimated price increase on non-Chinese tire imports added up to $817 million, and U.S. tire makers’ price increase as a result of the tariffs was $295 million. Although they calculated that each of those 1,200 saved jobs ended up costing $900,000 each. The tariffs did reduce the number of tires Americans bought from China — but it meant that the U.S. bought more tires from other countries that weren’t China — like Canada, South Korea, Japan, Mexico, and Taiwan, among others.
The additional money consumers were spending on tires meant that they weren’t spending on other retail items — and taking over a billion dollars out of the retail sector equated to about 3,700 jobs lost in the retail sector. So overall, with 1,200 tire manufacturing jobs saved and 3,700 retail jobs lost, that’s a net loss of around 2,500 jobs.
The impact of tariff that falls over the US products cause consumer prices to rise. Domestic manufacturing may not be the most efficient way of producing certain goods. The unfair advantage the domestic companies have over foreign companies would allow domestic companies to increase the price of their products. Also, for industries that depend on exports as raw materials, tariffs would increase their costs to produce, leading to higher cost for consumers.
The tariffs on trades has left central bankers worried. The stock market have been in the red, in China and US markets. Some White House officials are trying to restart talks with China to avoid a trade war before U.S tariff on Chinese products take effect July 6, three people familiar with the plans said, setting up a battle with others in the administration who favor a harder line according to Bloomberg.
Source: Bureau of Economic Analysis
The U.S. administration has said that after July 6, tariffs on an additional $16 billion worth of Chinese goods will be imposed after a public review period. The tariff threats have hurt U.S. stocks in the past week, with the Dow Jones Industrial Average headed for its eighth straight day of declines. Still, the chances of such negotiations happening in the near term are slim as long as opponents inside the administration favour penalising Beijing. US President Donald Trump has shown no signs of backing down.
After China swiftly responded with counter threats on the same amount of tariffs and timeline, Trump on Monday directed the US Trade Representative’s office to identify an additional US$200 billion worth of Chinese products that would be subject to a 10 per cent tariff. The administration has not published a timeline for these tariffs.
Tariffs on metal imports enacted on national security concerns are straining U.S. ties with allies from the European Union to Canada and Mexico. Other countries have become “spoiled” after taking advantage of free markets in the U.S. while erecting their own trade barriers, Wilbur Ross said as cited in Bloomberg.
“That game is over,” said Ross. “We’re going to fix it by making it more painful for those countries to do bad practices than to do the right thing, which is to lower the trade barriers and lower their tariffs.”
Trade tensions are likely to intensify even more, Goldman Sachs Group Inc. Chief Economist Jan Hatzius wrote in a report late Wednesday.
“In order for proposed tariffs to be useful in a negotiating strategy, trading partners must believe the risk is real,” he said. “We do not expect the Trump administration to be able to convince trading partners these proposals are real without also convincing financial markets. If so, it seems likely that trade concerns could rise further over the next few months.”
Overall if the trade war materialised on 6 July, there will be no clear winner. Asia has already taken measures, where foreign ministers and central bank governors from Asean and three others, which includes China, Japan and South Korea, met to discuss the threat of trade frictions and rising protectionism, and pledged to stay vigilant and work pre-emptively to avert threats to the global economy in May 2018. It is important that they recognised residing all forms of protectionism as they reaffirmed their commitment to an open and rule-based framework for multilateral trade and investment.
Singapore being a heavily dependence export country, main exports to China(14.5%), Hongkong(12.3%) followed by Malaysia(10.6%) according to worldtoexports.com. These are the countries Singapore have to pay close attention to with a fair share of SGX-listed companies that have operations in their territory.
Here’s what other investors are saying about the Singapore stock market currently (click the green view now button):
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