By John Ubaldi
Contributor, In Homeland Security
In a move that stirred Wall Street, President Donald Trump recently announced that he would extend tariffs to nearly all Chinese imports to the United States, thus escalating a trade war that has the potential to harm American consumers financially and upend financial markets worldwide.
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The tariffs, which will take effect on September 1, will affect more than $300 billion in Chinese exports – including smartphones, apparel, toys and many other consumer products. These new tariffs are in addition to the $250 billion in tariffs Trump has already levied against China.
US & China Continue Trade Talks
Fox Business reported that “the Chinese walked into the 12th round of face to face talks not prepared to make any moves and instead used hardball tactics. They wanted to let the newest members of their trade team, including Commerce Minister Zhong Shan, ask U.S. Trade Representative Robert Lighthizer line-by-line questions about the agreement on the table.”
Lighthizer, Treasury Secretary Steven Mnuchin, White House economic advisor Lawrence Kudlow and national security advisor John Bolton all oppose the new tariffs.
However, President Trump continues to push for the increase and still believes “a comprehensive trade deal” with China is possible. He plans on resuming high-level discussions scheduled for September, but he has expressed deep concern that Chinese President Xi Jinping has not honored past trade commitments, including a promise to halt the sale of fentanyl to the United States.
China is the main supplier of synthetic opioids and has contributed the opioid crisis in the United States. Fentanyl is a synthetic opioid that is 80 to 100 times stronger than morphine.
China Opposes Any Trade Enforcement
Protecting intellectual property (IP) is another area of contention. One in five North American-based corporations on the CNBC Global CFO Council says Chinese companies have stolen their intellectual property within the last year. In all, seven of the 23 companies surveyed say Chinese firms have stolen their IP over the past decade at a loss of approximately $225 to $600 billion annually.
Doing Business in China Never an Easy Operation
If a U.S. company wishes to conduct business in China, that company must partner with a Chinese company as a cost of doing business. The Chinese company therefore gains access to the U.S. company’s IP and other technical assets. If the U.S. company refuses China’s requirements, it cannot operate there.
Not surprisingly, various business groups have grave reservations about this new round of tariffs by the Trump administration.
“Tariffs are not the answer, escalation is not the answer,” said Myron Brilliant, head of International Affairs at the U.S. Chamber of Commerce. “We have to be careful about actions undertaken by either government that would stir the pot and not create the best atmosphere for getting these complicated talks back on track.”
The Impact of Trade Tariffs on U.S. Industries
Toymakers, for one, have a lot to lose because 85 percent of their products come from China. Consequently, many toy companies are moving their manufacturing sites to other place like Vietnam, Indonesia and Mexico. For example, Hasbro and Mattel are looking to reduce their manufacturing footprint in China.
“We have put together a contingency plan and are working closer with retailers to make sure we mitigate the impact,” Mattel CEO Ynon Kreiz said in an interview last month. “There are different levers we can pull,” he added, “including using manufacturers and vendors in other countries.”
Toymakers face the dilemma of possibly having to raise prices on their products during the crucial holiday season – meaning that the tariffs will hit manufacturers’ profits. A larger concern is that as prices rise for other consumer goods hit by the tariffs, consumers may think twice about spending as much on discretionary purchases like toys and games.
China’s Long-Game Strategy and 2020
President Trump has abruptly changed his mind on major policy initiatives in the past, but that doesn’t seem likely this time. Ultimately, China may look to employ a strategy of playing the “long game” by waiting for the outcome of the U.S. presidential election in 2020. Beijing is likely hoping that Trump will be defeated because Democrats have been relatively silent on trade with China and might be more receptive to compromise.