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China Strikes Back


Image source: Palabordee Khanthong / Shutterstock.com

What's going on?

After a month in which taxes (a.k.a. tariffs) were imposed by the US on some Chinese-made goods (and further measures were proposed), China struck back late on Sunday with its own tariffs on goods from the US. Investors fear it’s the next step in a burgeoning trade war. (tweet this)

What does this mean?

About a month ago, the Trump administration announced tariffs on imported steel and aluminum that are primarily targeted at Chinese producers. More recently, it announced plans to enact further trade barriers aimed at the Chinese technology industry. China has now hit back by targeting US exports of meat (like pork), fruit and other commodities.

Why should I care?

The bigger picture: Trade is… a trade-off.

Trade necessarily involves some industries benefiting at the expense of others, and therefore reducing trade has similar trade-offs (ba dum tss). So, while US steelmakers cheered the Trump administration’s “protectionist” move, it’s US farmers and the agricultural industry that are likely to bear the brunt of China’s new retaliatory measures. Depending on the Trump administration’s next moves, China might target goods made by Boeing or other big US firms like Apple. This is one reason why economists fear trade wars so much – they can escalate quickly and a range of industries can be negatively affected.

For markets: All this “trade war” rhetoric is giving investors a headache.

March was one of the worst months for stock prices globally since early 2016 – and the weakness was likely driven, at least in part, by concerns that these increasing barriers to trade would harm companies’ profits. Monday, a holiday in Europe but a trading day in the US, saw US stocks decline about 2% as investors digested China’s move. This week, the Trump administration is expected to release a list of Chinese products that could be targeted for intellectual-property violations. In other words, it seems as though the rhetoric – and actions – will only increase from here.

Originally posted as part of the Finimize daily email.

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