Earlier this year, the US imposed levies on about US$50bn in Chinese imports. Well, that number has just gotten higher – a lot higher. Last week (Sept 17), Trump announced that as off September 24, Chinese imports worth roughly $200bn will be subjected to 10% of tax. China promised to retaliate on the same day and tax $60bn worth of American goods. If no peace is made between the two countries by year’s end, America will increase its tax to 25%.
Trump’s vitriol about China is long and unending, tweeting about how China has taken advantage of Americans. However, this time he might have some ground to stand on. These tariffs were imposed in response to China’s unfair trading practices, such as theft of Intellectual Property (you know like the fake Adidas slipper that says Abibas instead). In the last couple of years, the US has taken China to the World Trade Organisation (WTO) a total of 16 times to resolve trade disputes, winning all 16 times.
Why is this significant?
Trump is going about penalising China in a rather unconventional way. Typically, the US (or any country) will report a violation to the WTO and let the organisation rule on whether a violation has been made. Then the WTO will allow limited retaliation. However, Trump believes that the WTO’s rule book is incomplete, making it incapable of dealing with China’s violations. It also doesn’t help that America has blocked the appointment of judges to the WTO’s body of appeals.
China is, of course, unhappy with this development. It has called off trade talks that were initially planned for this week. China to US exports amount to $500bn whereas US to China exports only add up to $130bn, therefore it seems that China has a lot more to lose than the US if the trade war is kept up.
If this trade war continues, manufacturers will naturally pass on the increased cost of production to the consumers in the form of higher prices.