August 2, 2019

China Tariffs

On Thursday, “President Donald Trump intensified pressure on China to reach a trade deal by saying he will impose 10% tariffs Sept. 1 on the remaining $300 billion in Chinese imports he hasn’t already taxed.” AP News

On Wednesday, “the central bank cut its benchmark rate — which affects many loans for households and businesses — by a quarter-point to a range of 2% to 2.25%. It’s the first rate cut since December 2008 during the depths of the Great Recession.” AP News

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From the Left

The left is worried about the harmful effects of the tariffs on the US economy.

“What is already clear is that the United States, China and the world face a few weeks of uncertainty surrounding the world’s largest bilateral trading relationship. This, added to the uncertainty already clouding the world’s second-largest such relationship — the one between the United States and Canada, which awaits ratification of a renegotiated free-trade deal — confirms that Mr. Trump’s policies are becoming one of the greatest sources of instability for a fragile world economy.”
Editorial Board, Washington Post

“Everyone loses when the world’s two largest economies slap tariffs on each other. The slump to 2.1% growth in second-quarter U.S. GDP unveiled Friday was attributable largely to stalling business investment due to trade war-fueled uncertainty. And in China, where growth has slowed to 6.2%, a similar pattern has emerged. The fallout is more chronic than acute. In sports terms, the injury is more like a concussion than a blown-out knee. Tariffs sting. But the bigger blows are hits to investment, confidence and growth.”
Shawn Donnan, Bloomberg

“Chinese retaliation has hurt [American] manufacturers such as Boeing Co., Caterpillar Inc. and Deere & Co… U.S. manufacturing employment has barely accelerated from the pre-Trump trend, and hasn’t even made up the ground it lost in the Great Recession, much less reversed the drop since China entered the WTO… in economic terms, Trump’s trade war has been a loss on every front

“[But] In parallel with Trump’s tariffs, the U.S. has been waging a different sort of trade war against China aimed at reducing Chinese dominance in cutting-edge technology industries… The swift and devastating impact of export restrictions on China’s Huawei Technologies Co. shows the effectiveness of these [policies]. Thus, even though protectionism has hurt the U.S., it may have hurt the U.S.’s chief rival even more. Whether that is worth the cost depends on one’s view of geopolitics and the importance of continued U.S. hegemony.”
Noah Smith, Bloomberg

The Trump administration’s China strategy…  is effectively to crash the Chinese economy. Placing tariffs will not only make the country’s products more expensive for Americans to buy, but will also induce multinational corporations to move their manufacturing plants and offices to other nearby countries… So while Trump wants to make a deal with Xi — partly to end China’s theft of American intellectual property and other aggressive trade practices — he’ll settle for destroying China’s economy in the meantime.”
Alex Ward, Vox

This move comes at a sort of odd time. The U.S. economy has been looking fragile lately—bond markets are screeching in panic, GDP has slowed a bit, and business investment is drying up. Just about everybody agrees that Trump’s trade war is contributing at least somewhat to the uneasiness… Now Trump has gone and ratcheted up the conflict, which means Americans will pay even higher taxes on imports and that there will be more uncertainty for businesses trying to figure out their supply chains. It will almost certainly be bad for the overall health of the economy…

“One possibility is that Trump simply isn’t worried about the effect that his tit-for-tat with China is having on the economy and just wants to keep fighting it to the bitter end… But it’s also possible that this move is partly meant to scare the Fed into taking more action than it did Wednesday. Many investors (as well the president) were hoping that Powell would signal that the Fed intended to pursue an aggressive series of rate cuts.”
Jordan Weissman, Slate

From the Right

The right is supportive of taking action against China but divided about whether tariffs are worth the economic risk.

The right is supportive of taking action against China but divided about whether tariffs are worth the economic risk.

China poses the preeminent threat to U.S. global order and must be defeated in that effort, and U.S. intellectual property must not be sacrificed under any new trade deal… By escalating in the trade fight, Trump is showing Beijing that he will risk his own electoral position in order to win. That will factor in Xi's mind in that it's still a long way to January 2021, or even January 2025. Moreover, Trump is gambling with good reason that Beijing will want some kind of deal by that point…

“The risks, however, are equally real. While the U.S. economy remains strong in employment rates and consumer markets, it suffers increasing strains from the China trade war… U.S. capital investment and investor confidence is collapsing. At some point, those factors will reverberate within the broader economy. China is banking on that reverberation occurring sooner rather than later.”
Tom Rogan, Washington Examiner

The trade war is just one front in what we should view as the Second Cold War. China seems to be in the lead in developing and employing technologies like artificial intelligence, hypersonic missiles, and 5G (which has extensive defense and intelligence system applications). Together, these technologies could create a strategic military advantage for China as early as the next decade, putting China in a position to challenge or even defeat the United States…

“With its current tariff strategy, the Trump administration is walking a very thin and unstable line. China has numerous cards left to play, the results of which would range from pain to outright disaster for American businesses that are dependent on importing Chinese products… [For example] China has threatened to withhold rare earth metals from the United States, which would cause serious disruptions in the manufacture of everything from cell phones to solar and wind energy to aircraft and missiles for the U.S. military…

“The United States does not want to find itself strategically inferior to China in the 2020s. However, the prospect of the world’s two largest economies entering an economic war would be unlikely to produce a happy ending for anyone involved.”
Keith Nobles, The Federalist

“Another round of talks with China will begin next month, shortly after the tariffs go into effect. If China can be pushed into an enforceable trade agreement, that should set up the incentives for some concessions. If it doesn’t work, though, this will likely be the new normal, and Trump will have to work overtime to keep it from damaging the consistent economic growth he needs to win re-election.”
Ed Morrissey, Hot Air

“One problem with President Trump’s China trade strategy of gradually escalating tariffs is that no one knows when or whether they’ll stop… Mr. Trump’s Thursday tweets on China were respectful and anticipated further bilateral trade talks. But the President is embarked on a high-risk coercive showdown with the world’s second largest economy in which neither side wants to bend first. Trade wars aren’t easy, especially for the innocent economic bystanders.”
Editorial Board, Wall Street Journal

“I understand why President Trump is standing up to China and I applaud him for it – and it’s about time we had an American leader who did… [But] these tariffs are penalizing [American] businesses and [American] families – not the Chinese government or Chinese companies… China must be held accountable for their actions. But tariffs aren’t the answer.”
Andy Walton, The Resurgent

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