We are entering a period when the tariff controversy with China is getting serious.
A failure to break an impasse in talks in Washington on Friday opened a new phase in the trade fight after more than five months of back-and-forth negotiations. This time, some economists and analysts said, Beijing is taking stock of potential economic damage from higher tariffs.
The U.S. raised punitive tariffs to 25%, from 10%, for $200 billion in goods leaving China on Friday and thereafter. President Trump also ordered staff to begin the paperwork to impose levies on the more than $300 billion worth of everything else China sells to the U.S.
While Beijing has met previous volleys of tariffs from the U.S. by raising duties on American goods—and the government has promised to retaliate—it held its fire. Though China has more limited tariff options, since it imports fewer products from the U.S. than the other way around, the Chinese leadership is also constrained by an economy that is in a shaky recovery from a sharp slowdown.
There is talk of China boycotting US farm products. They tried it a year ago.
The world’s biggest oilseed processor just confirmed one of the soybean market’s biggest fears: China has essentially stopped buying U.S. supplies amid the brewing trade war.
“Whatever they’re buying is non-U.S.,” Bunge Ltd. Chief Executive Officer Soren Schroder said in a telephone interview Wednesday. “They’re buying beans in Canada, in Brazil, mostly Brazil, but very deliberately not buying anything from the U.S.”
In a move that caught many in U.S. agriculture by surprise, China last month announced planned tariffs on American shipments of soybeans.
“China has to resume purchases of U.S. soybeans,” Oil World said in its latest newsletter. “The South American supply shortage will make it necessary for China, in our opinion, to import 15 million tonnes of U.S. soybeans in October 2018/March 2019, even if the current trade war is not resolved.”
China may not be in good shape to handle a trade war.
The tariff escalation is worrisome for Chinese officials, who are watching potential ripple effects, from weakening of the currency to crimping future foreign investment. Raising existing tariffs or imposing new ones could hit products China’s economy needs, like semiconductors, pork, oil and passenger jets.
A wider-scale trade conflict could also force Beijing to further ease credit and boost government spending to shore up growth, doubling down on the stimulus used last year at a time some analysts say it should be ratcheting back such measures.
What is behind this trade controversy? A long history of US accommodation of China, which began as a way to open China to world trade and reduction of tensions with the US. It began with Nixon in 1972 but continued with Bush, who had been ambassador, and then Clinton who allowed a campaign donor to sell critical missile technology to China.
In 1998, the New York Times’ Jeff Gerth broke a story about the Clinton administration’s willingness to permit two U.S. aerospace corporations to transfer sensitive missile technology to the Chinese. The CEO of one of the corporations, Loral, had pumped hundreds of thousands of dollars of campaign contributions into the Democratic National Committee. In return, the Clinton administration waived controls on Loral’s export of these technologies to the Chinese aerospace industry.
As usual, the US media covered for Clinton.
One of Clinton’s favorite reporters was Walter Pincus of the Washington Post. His son was then the General Counsel at the Commerce Department, which had authorized the illegal transfers. Despite the obvious conflict of interest, Pincus repeatedly wrote or contributed to Post stories parroting the Clinton line. Pincus did not write the recent story about the Hughes’ fines.
Now, we have a new president who is trying to reverse the huge trade imbalance, against considerable resistance from the usual suspects.
U.S. Trade Representative Robert Lighthizer; U.S. Treasury Secretary Steven Mnuchin; U.S. Commerce Secretary Wilbur Ross and U.S. President Donald Trump are confronting Chinese Chairman Xi Jinping and Vice-Chairman Liu He… and now consequential things get economically very serious.
There are going to see multiple geopolitical background moves now as the confrontation shifts to the painful phase…. who can outlast the economic standoff.
WASHINGTON DC – Negotiations to end the US-China trade war came to a surprisingly early close in Washington on Friday with no signs of a deal – reportedly just hours before the Chinese delegation will return to Beijing.
Where is the resistance coming from? Aside from China, of course?
However, Lighthizer and Trump are not only fighting China, they are fighting U.S. politicians who are beneficiaries of China. They are also fighting against the U.S. CoC, the multinational corporations, Wall Street and members of both political parties who desperately want to stop any trade balance reset.
Almost half, perhaps more than half, of congress has a better financial self-interest if China can gain economic superiority over the United States. This congressional hearing, and the severity of Lighthizer toward those purchased politicians, highlights this very tenuous internal challenge.
“Big Ag” will be part of it. Much of US agriculture is now heavily corporatized. The family farm is not common.
The U.S. economic, trade and manufacturing system is so structurally broken, after three decades of severe corruption by corporate financial interests: Almost half, perhaps more than half, of congress has a better financial self-interest if China can gain economic superiority over the United States.
The likely response from China will be additional tariffs on U.S. goods and/or refusal to purchase U.S. agriculture products. Their strategy will be to get key BIG AG senators, and the U.S. Chamber of Commerce, to target fire toward President Trump over diminished farm prices.
How will Trump fight this ? What effect will tariffs on Chinese imports have ?
The prices of imported durable goods (stuff from China) will increase, slowly over time; depending on the supply chain for the specific product sector. However, if China retaliates by stopping import of U.S. agriculture products, the prices for U.S. domestic highly-consumable goods drops quickly.
In this scenario Wall Street is hardest hit. Other than the AG sector, Main Street -and the U.S. consumer therein- actually benefits.
The Big Club will go bananas.
Corporate America is not necessarily the consumers’ friend. Many decided the US future was as a service economy,
President Trump has begun a process for less dependence on foreign companies for cheap goods, (the cornerstone of a service economy) and a return to a more balanced U.S. larger economic model where the manufacturing and production base can be re-established and competitive based on American entrepreneurship and innovation.
No other economy in the world innovates like the U.S.A, President Trump sees this as a key advantage across all industry – including manufacturing.
The benefit of cheap overseas labor, which is considered a global market disadvantage for the U.S., is offset by utilizing innovation and energy independence.
The third highest variable cost of goods beyond raw materials first, labor second, is energy. President Trump unleashed the U.S. energy sector and slashed regulations; as a consequence the U.S. manufacturing price of any given product now allows for global trade competition even with higher U.S. wage prices.
Interesting. He’s been thinking about this stuff for years.