8Oct

WHAT IS HAPPENING WITH U.S. AND CHINESE TARIFFS?

The U.S. buys a lot from China. That may be the understatement of the year. The number is actually a half a trillion dollars annually. That is a very big number, even by Washington’s standards.

It may seem like just about everything that we buy as American consumers is made in China and that isn’t far off base. Cell phones, computers, toys and furniture are some of the leading imports and the first two make up the biggest percentage of imports.

The problem is that the Chinese government does not want to reciprocate. China imports about $15 billion annually of U.S. farm crops such as soy beans and $10.5 billion of transportation equipment such as airplanes. They also import about $7 billion annually of oil and gas products.

While much of the attention in talk of a “trade war” has centered on steel and aluminum, those two products represent a small portion of total imports compared to cell phones and computers. Cell phones alone account for nearly $84 billion.

This year, Chinese imports from the U.S. could hit $150 billion. That would be a big improvement over the past five years. The imbalance in trade becomes very apparent when you compare the numbers and realize that the U.S. imports cell phones amounting to more than half of all the imports China buys from the U.S. This imbalance was a common theme on the campaign trail for the president.

The concern, among manufacturers and many consumers, is that as China also raises tariffs, a protracted trade war would raise consumer prices on a myriad of goods.

Because Americans like affordable products, and China has filled that need over the years, the imposition of tariffs will increase the costs of those products driving the manufacturing to other countries. China ends up the net loser in this scenario even though American consumers may be stuck with a higher price tag on many goods during an interim period.

What Products will Receive New Duties?

In terms of the tariffs themselves, the U.S. has imposed tariffs on $200 billion of Chinese imports. In retaliation, China has imposed new tariffs on $60 billion of U.S. exports. The additional Chinese tariffs target natural gas, small aircraft, chemicals, meat, wine, wheat and textiles. Previously, China had imposed new tariffs on $50 billion of U.S. products.

The new U.S. tariffs apply to nearly 6,000 Chinese imports, including handbags, textiles and rice. The U.S. has not imposed tariffs on cell phones.

This round of tariffs will be the third for the U.S. against Chinese imports. The new tariffs now impact half of all Chinese imports. The U.S. removed planned tariffs on many imports including smart watches, baby car seats, bicycle helmets and high chairs.

The hope is that a fairer trade agreement will be struck with China allowing for more balance. If American companies shift the country of manufacture of their goods, then China will lose billions.
Right now, it is a stalemate and we wait to see who blinks first.


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