The trade war roiling the global economy is being fought not trench by trench but product by product. A typical salvo was a tariff placed by the U.S. in 2018 on imports from China of “Harrows (other than disc), scarifiers, cultivators, weeders and hoes for soil preparation or cultivation.” Beyond the fine print are broad issues such as market access, intellectual property and the proper role of government in the economy. The struggle between a rising superpower and an incumbent one is playing out alongside a deepening competition for advantage in emerging technologies.
1. Why are we in a trade war?
U.S. President Donald Trump, who calls himself “Tariff Man,” says China and other trading partners have long taken advantage of the U.S., an argument that enjoys broad support among U.S. lawmakers. He points to the trade deficit (the difference between imports and exports) as evidence of a hollowing out of U.S. manufacturing and the loss of American might. For more than a year, he has ratcheted up tariffs, which are a tax on imports, and encouraged U.S. companies hurt by them to move production — and factory jobs — back home.
2. Who are Trump’s targets?
Mainly China, which accounts for the bulk of the deficit. But Trump also pulled the U.S. out of a proposed trade deal with Japan and 10 other Asia-Pacific countries, calling it unfair for U.S. workers, and started talking directly with Japan instead. He has threatened 25% tariffs on millions of imported cars and car parts from Europe and Japan, and insisted on renegotiating (and renaming) the 1994 pact with Canada and Mexico known as Nafta.A threat to impose tariffs even figured into Trump’s immigration dispute with Mexico.
3. What’s special about China?
China’s admission into the World Trade Organization in 2001, under rules that granted it concessions as a developing country, greatly accelerated its integration with global markets and supply chains. Studies have shown that Chinese exports led to lower prices for U.S. consumers — and helped lift millions of Chinese out of poverty. The country’s ascent also resulted in the loss of millions of U.S. factory jobs. China’s power — especiallyits technological prowess — is now at a point where it risks eroding American military and economic advantages. China insists it plays by global trade rules, and it sees the U.S. as seeking to contain its rise.
4. What’s happened with tariffs?
Trump started in January 2018 with levies on imported washing machines and solar panels to protect U.S. producers. He then hit steel and aluminum imports from a variety of countries on national security grounds, arguing that a weakened U.S. industry would be less able to build tanks and other weaponry in a military crisis. Tariffs on goods specifically from China kicked in starting in July 2018. China responded in kind. A truce was called in December, and a deal seemed to be in the offing until May, when Trump started raising tariffs again on a scale not seen in decades, provoking further retaliation.
5. Who pays the tariffs?
A middleman — the U.S. importer of record — pays the tariff when the product lands in the country. The importer might absorb the cost or pass it along to a wholesaler, who might pass it to a retailer, who might raise the price for consumers. In those cases, Americans pay. Or the Chinese producer might cut factory prices to make up for the tariffs, or shift production outside China to avoid them. In such cases, the economic pain would be felt in China.
6. Is Trump’s strategy working?
The U.S. trade deficit increased to a 10-year high of $621 billion in 2018. Economists say the trade war actually helped to widen the gap by contributing to an economic slowdown in China and Europe. Meanwhile, American farmers have lost markets and income as China and other trading partners raised tariffs in retaliation. Trump is holding tight to his view that the trade war is helping the U.S. economy, and he was able to point to evidence supporting that view: A better-than-expected first reading of U.S. gross domestic product in the first quarter had the economy growing at an annual 3.2%, in part because of a full percentage point boost from net exports, and employment data showed the U.S. added 263,000 jobs in April. But the May jobs report was a disappointment, with just 75,000 jobs created and a sizable reduction in estimates of job growth in previous months.
7. Who’s at risk?
U.S. companies including Walmart Inc. and Nike Inc. have warned of higher prices. Apple Inc. faced hits in both directions, since its popular iPhone is assembled in China in part with components made in the U.S. Rising costs would be felt across the globe, especially in places such as Taiwan and South Korea, which are tied to the Asian electronics supply chain. Some economists have even predicted a global recession should the trade war escalate. Trump’s unorthodox threat to use tariffs to pressure Mexico on border security — despite a newly minted free-trade deal — raised questions about the value of any agreement with the U.S. Trump also has said he wants to keep tariffs in place until he’s sure China is complying with any deal — which means they could be around for years.
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