Trade War

Will Any US States Benefit from Protectionism?

The end of January will see key figures in both the US and Chinese governments meeting to discuss the trade war ongoing between the countries. The nations have until March to work out some “structural changes” to the way they conduct trade. Otherwise, Donald Trump’s tariff rate on the Chinese will be raised to 25% from 10% and will impact on $200 billion of Chinese imports. With the clock ticking, protectionists in the USA are in favor of the tariffs, which they believe would allow manufacturing to return to US soil and give a boost to several industries that formed a key part of Trump’s strategy during his presidential election campaign. But have any states in the US felt the benefits of the trade situation with China – and are any likely to see the benefits should the tariffs be raised?

 

The trade war began as a cold front in 2018 as tariffs were introduced and President Trump started to dismantle the trade agreements that had been in place. Indeed, the manufacturing states in the south are actually most at risk if the trade war intensifies. Manufacturing-heavy Alabama, Kentucky, and South Carolina are reliant on the fact they can ship $1bns into the Chinese market and a tit-for-tat trade war with tariffs would stifle this growth. While tariffs haven’t been properly implemented so far, the forecast for the implementation can be monitored through various financial methods. For instance, the Dow Jones is a reliable way of financially measuring some of the most profitable US companies. An impact from tariff rises can be monitored and analyzed to see how this would affect businesses down the line and across sectors.

While some protectionists do argue that industry in the US will improve, most economists believe that the US needs China far more than China needs the US. Farmers are also concerned that they will be priced out with a retaliatory Chinese tariff rise, which could see the industry decimated on a global scale. The tariffs that come back to them will cause price increases to match overheads, which will effectively price them out of the global market. While some support the protectionist policies – which will force some US companies to use the US manufactures or produce, the export market for a lot of industries is far greater and much more profitable than attempting to pass products on within the country. Losing such a big market will impact a large range of sectors that might not even have expected to be hit.

Img source: johnlocke.org

There is still time to rectify the US-China trade situation before Trump’s tariffs take effect. No states look to benefit from the tariffs, and some actively look to be made worse off – especially those that have been named as states and industries that will see positive effects. Overall, the economy will suffer as businesses try to rationalize the price hikes within their own structures, which will likely be passed on to the consumer. Indeed, the only people expected to benefit from the US-China trade war seem to be Chinese manufacturers.

Powerful Dollar Could Weaken Oil

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The oil industry has been the cornerstone of the economy of the United States as well as its foreign policy, and now, the currency is threatening to weaken it. In the last few weeks, the US Energy Information Administration has filed some reports stating that the prices of benchmark crude oil fell to $70 per barrel for Brent and $67 for a barrel for West Texas Intermediate. These were priced at $80 and $75 respectively.

What is worrying is that these reports come just a few months after the predictions that the benchmark crude prices would soar in the upcoming year. But considering everything that is going on – President Donald Trump’s tariffs on certain goods as well as the rise of the dollar – this is going to slow down the oil industry on a global level.

And if we scratch under the surface, you get to see how tariffs are affecting the emerging markets. When Washington introduced steel and aluminum tariffs as well as duties on solar panels and washing machines, for instance, countries such as China, Turkey, and South Korea responded by devaluating their currencies, effectively making the exports less costly.

“Suppose you were exporting something for $100 before the tariffs, then President Trump says we’re going to put on a 25-percent tariff – if you devalue your currency by 20 percent, that brings you back to close to $100,” says Steven Kopits, president of Princeton Energy Advisors, a consulting firm. “So there’s a natural tendency that countries depreciate their currency to maintain the transactions.”

What we have as a result is the more expensive US dollar, by comparison. As we know, the crude oil is traded in dollars, which means that oil becomes costlier to import and that will lower the demand and slow down the countries that chose to devalue their currencies to counter Trump tariffs. This transfers to the economic slowdown for the global market and can backfire and affect the US economy as well.

“This is one of those things where, can I go over and set my neighbor’s house on fire? Sure, you could. Does it mean that my house won’t burn down? Well it might not, but it could burn down your house, too,” Kopits says. “So if you set your neighbor’s house on fire, you probably have a problem.”

“The reaction within 60 minutes of this EIA release was wave after wave of selling,” Tom Kloza, head of global energy analysis at Oil Price Information Service, wrote after last week’s EIA analysis. “There have been several false ‘dive’ alarms sounded this summer, but this particular report may be the one that inflicts more lasting damage.”

image source: dollarsandart.com

Although the US stockpiles of crude oil have gone up, the oil used to keep the refineries that are running at a breakneck pace and crude exports are going down. “This is very bullish, as it suggests U.S. refiners anticipate strong refined product demand, either domestically or via exports,” Kopits says.

We have witnessed recent declines, but the oil prices are still on the highest points since the fall of 2014. According to Kloza, the EIA’s recent bulletins might seem “to cast plenty of doubt on crude oil and product prices headed into the final third of the year,” but they can “sometimes be taken too seriously.”

“I do believe the currency aspect of oil prices has been understated as of late,” Patrick DeHaan, head of petroleum analysis at GasBuddy.com, writes in an email. “As we prepare for the conclusion of the U.S. summer driving season, the largest seasonal consumption in the world, oil prices may remain under [downward] pressure for the early fall. I can’t think of a time in the past that such policy has played such a role in oil prices globally, and this doesn’t look like it will end soon as the U.S. lashes out against multiple trading partners, cutting into the strength of their currency, and leading the dollar to higher ground.”

Largest Trade War Ever – Trump Hits Chinese Imports, Beijing Quick To Respond

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China is the biggest trade partner of the U.S., and after President Donald Trump imposed tariffs on imports from China, he started a trade war between two of the most important economies of the world. Washington set a 25% tariff on $34 billion worth of goods coming from the Far East country, and it started on Friday, at 12:01 a.m. ET. As a result, foreign ministry representatives from Beijing stated that additional duties would be imposed on the U.S. made goods.

As soon as POTUS announced that there could be additional tariffs on Chinese products, Beijing responded saying that they will counterattack and among the first to be hit are the car manufacturers and soybeans. There is a long list of products that Trump presented, and this is done as he isn’t pleased with the trade deficit that the U.S. has with China.

Source:bbc.com

One more thing that the United States officials mentioned about China and the way some of its companies are doing their business is the predatory tactics that are quite unfair as it requires from the U.S. companies to share tech so that they could access the market of China. These allegations were rejected by Beijing.

For many economists and analysts, this trade war is a big mistake as it will mostly hit consumers. Here is what Josh Kallmer, executive vice president for policy at the Information Technology Industry Council, a trade association for the communications technology industry said: “The decision to impose tariffs on Chinese goods will harm American consumers and businesses without addressing discriminatory and systemic Chinese trade practices and policies.” He continued by adding “It is troubling that the (Trump administration) continues to assume that the imposition of tariffs will convince China to resolve complex trade issues, and irresponsible to downplay the impact on American workers and businesses.”

The trade deficit of the U.S. towards China hit the record in 2017 at $375 billion, and they are in front of Canada and Mexico when it comes to trade with Washington. On the other hand, the European Union is the biggest political bloc in terms of trade with about $1.1 trillion in goods and services exchanged in 2016.

Source:azhar-azam.blogspot.com

It is clear that we are at the brink of the largest trade war in history as Trump is ready to clash with China and he already damaged his relationship with longtime allies Canada, Mexico, Europe, etc. William Zarit, chairman of the American Chamber of Commerce in China said: “There are no winners in a trade war.” He also added that both sides need to sit down and find a solution.

Source: usatoday.com

Donald Trump believes He Can Win in Trade Wars

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Donald Trump has been dissatisfied with the trade deals, and he has started several trade wars. Thanks to the powerful US economy, he might be able to carry on longer than the other countries.

The decisions to engage in trade wars with his enemies as well as his friends are criticized by many, and they claimed that he would have to give up on the fight before tariffs and other US sanctions cause much damage, especially considering that we are entering mid-term elections in the fall. However, the US economy is on president’s side whether we like him or not. The US economy will grow at a 3.7% annual clip in the second quarter. Interestingly enough we haven’t seen an increase of over 3% since 2005, and this would be the first time that this happened.

Some of the things which have propelled the economy forward are tax cuts, higher government spending and a low unemployment rate caused by the increase in business investments over the last few years. Gus Faucher, chief economist at PNC Financial Services in Pittsburgh said: “The economy is doing well. You don’t want to see it happen, but there are a lot of worse times [a trade fight] could happen.”

Compared to the US, the Canadian economy is growing at its weakest rate in the past two years, while the European has also slowed down drastically. On the other side of the world, China is enduring a bear market in stocks.

Source:electrive.com

One of the reasons why the United States has a healthy economy is that Americans are buying and selling from the other Americans. The US is exporting 12% of its goods, while that percentage is almost 20% for China and about 33% for Canada and 50% for Germany, one of the leading EU countries.

“Nobody wins in a trade war, but the U.S. is much, much less dependent on exports as a percentage of our economy,” said Carl Tannenbaum, chief economist at Northern Trust in Chicago. “The strategy is very clear. They are willing to go a long way with the tariffs because they feel our relative pain will be lower than it will be for other countries.”

Trump has believed that the other countries have taken advantage of the United States and now he wants to put an end to it. And he was right – the economists claim that the US economy is more open and has fewer trade barriers, generally speaking. Chief Economist Richard Moody of Alabama-based Regions Financial said: “It’s not that there are not legitimate grievances. The question is the best way to go about resolving them.”

However, the approach Trump has taken is unconventional for Washington that has always relied on a dialogue. So far, POTUS has announced billions worth of tariffs on Chinese-made products and foreign steel, and he also wants to block the transfer of sensitive US technologies. Moreover, he will most likely impose automobile tariffs on Canada and the EU. And while these are the resources America is imposing the additional taxes on, the other countries targeted goods such as soybeans, whiskey, and Harley-Davidson bikes.

Source:express.co.uk

Trump tweeted: “The United States is insisting that all countries that have placed artificial Trade Barriers and Tariffs on goods going into their country, remove those Barriers & Tariffs or be met with more than Reciprocity by the U.S.A. Trade must be fair and no longer a one way street!”

In the short run, the US will suffer little damage. In other words, whether the US has the growth of 3.0 or 2.8 percent, it doesn’t really matter. However, some businesses will be affected by trade wars and companies as well as individuals could pay more for the goods which are affected by the US tariffs. Trump should win these trade wars and work out new deals sooner rather than later because as the time passes, the damage that could be done to the US economy increases. The good thing about everything that is going on is that the other countries are under a lot more pressure and they may be the ones to give up first.

Source: marketwatch.com

US and China begin negotiations aimed at avoiding a trade war

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Led by the Treasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer, the US delegation will be staying in Beijing until Friday, trying to iron out the kinks in the relations between the two countries caused by the mutual accusations and tariffs threats that could put a serious hamper in both economies.

US President Donald Trump is optimistic about the outcome and has tweeted on Wednesday: “Our great financial team is in China trying to negotiate a level playing field on trade!”

Unfortunately, not everyone agrees with Mr. Trump.

Michael Camunez, CEO of consultancy Monarch Global Strategies, is somewhat skeptic about a deal being made. “I don’t expect any grand bargains being struck,” he said. Camunez remarked that the US delegations don’t feel unified and that their platform is unclear. These are the weaknesses Chinese are sure to exploit.

There are several aspects of the trade deal Mr. Trump has promised to address in his campaign. The most glaring one is a huge trade deficit, reaching a staggering $375 billion last year. Even a Chinese promise of increasing its US imports by $50 billion would be considered a win for the Trump team, but the trouble is that there simply aren’t that many goods manufactured in the USA Chinese want to buy. Those that they do want, like high-tech electronics, are denied to them, due to security concerns.

Another objection Mr. Trump often used in his campaign against China is the theft of intellectual property. He was adamant that China must take steps to reduce and eventually stop this practice.

Source:scmp.com

Finally, there is the question of increased access to the Chinese market. This is the point that Chinese are most likely to agree with and allow foreign companies greater access to its market by changing regulations. There are already steps being taken in that direction, with an act allowing foreigners to own and control Chinese financial institutions, but the amount of the red tape included is so big that so far only one company has managed to meet the requirements.

It remains to be seen how Mr. Trump will react if negotiations fail and his tariffs package is put into action.

Source: money.cnn.com