Trump announces new tariffs on China

On August 1, President Trump announced 10-percent tariffs on 300 billion dollars' worth of Chinese goods that previously had not been subject to import duties.  These new tariffs are scheduled to kick in on September 1 and are in response to China reneging on or failing to live up to prior trade promises.

The naysayers with their Adam Smith textbooks in hand are all over the media, claiming that tariffs increase the price of goods for the American consumer.  But this is not the case.  If it were, price inflation in the U.S. would not be as low as it is now, nor would the economy continue to be strong.  Contrary to "expert" opinion, China's manufacturers are carrying most of the tariff burden.  The reason why is that the Chinese economy is highly dependent on exports to the U.S. and cannot afford to lose market share.

The purpose of tariffs on Chinese goods is to force China to make the necessary concessions so the terms of trade between the U.S. and China are equitable.  They are working.  The tariffs are severely hurting the profits of Chinese companies and forcing the Chinese government to go even deeper in debt to support them.  The Chinese cannot endure this indefinitely.  Their strategy is to wait out Trump and hope to have someone like Joe Biden in the White House in January 2021. 

In the meantime, there's another aspect to the tariffs that's at play. 

The tariffs are putting tension not only on Western companies in China, but also those companies contemplating setting up shop there.  The uncertainty of the trade dispute is affecting business decisions up and down the line.  As a result, many companies are shifting production out of China, while others are canceling their previous plans to locate there.  This means that as long as a trade agreement remains unresolved, China's manufacturing base erodes by the day. 

Trump knows this full well.  This is why he should not be expected to settle for meaningless compromises with Communist China.  He has the strong hand, and the man knows how to play it.

On August 1, President Trump announced 10-percent tariffs on 300 billion dollars' worth of Chinese goods that previously had not been subject to import duties.  These new tariffs are scheduled to kick in on September 1 and are in response to China reneging on or failing to live up to prior trade promises.

The naysayers with their Adam Smith textbooks in hand are all over the media, claiming that tariffs increase the price of goods for the American consumer.  But this is not the case.  If it were, price inflation in the U.S. would not be as low as it is now, nor would the economy continue to be strong.  Contrary to "expert" opinion, China's manufacturers are carrying most of the tariff burden.  The reason why is that the Chinese economy is highly dependent on exports to the U.S. and cannot afford to lose market share.

The purpose of tariffs on Chinese goods is to force China to make the necessary concessions so the terms of trade between the U.S. and China are equitable.  They are working.  The tariffs are severely hurting the profits of Chinese companies and forcing the Chinese government to go even deeper in debt to support them.  The Chinese cannot endure this indefinitely.  Their strategy is to wait out Trump and hope to have someone like Joe Biden in the White House in January 2021. 

In the meantime, there's another aspect to the tariffs that's at play. 

The tariffs are putting tension not only on Western companies in China, but also those companies contemplating setting up shop there.  The uncertainty of the trade dispute is affecting business decisions up and down the line.  As a result, many companies are shifting production out of China, while others are canceling their previous plans to locate there.  This means that as long as a trade agreement remains unresolved, China's manufacturing base erodes by the day. 

Trump knows this full well.  This is why he should not be expected to settle for meaningless compromises with Communist China.  He has the strong hand, and the man knows how to play it.