The current tariff battle and the impending trade war between the U.S. and China began in 2011 when Donald Trump was anticipating a run for the Presidency. Since then, the China Ocean Shipping Company has shipped fewer products from the U.S. to China mainly because there has been a steady increase in friction between the two countries over trade balances.
In an agreement that began as a discussion, it was not long before the U.S. imposed specific tariffs on Chinese goods, and in retaliation, China also imposed tariffs on U.S. goods. The result has been an increase in the annual living costs for most Americans by about $1,245, and a slowdown of the growth of U.S. businesses leading to less of a demand for shipping.
What are the Tariffs?
The first actual tariffs imposed by the U.S. on China occurred in July of 2018. This came as a surprise to most economists and politicians, and it has created a scenario that will forever change the trade relationship between the U.S. and China, as well as between the U.S., China, and the other countries of the world.
The U.S. has slapped tariffs of over $250 billion on Chinese goods, and they are threatening another round of tariffs totaling at least $300 billion by September of 2019. China has retaliated by imposing tariffs on U.S. goods for the estimated amount of $110 billion.
This escalation of tariffs has resulted in claims of dishonesty and manipulation on both sides, and many financial organizations predict that there will not be resolution until after the U.S. election in 2020. Even then, the final agreement, if any, will have altered the playing field, and the configuration of the countries directly involved with both the U.S. and China.
The Effects on U.S. Business
When a country imposes a tariff on imports from other countries the initial impact may be a positive one because the companies exporting have to raise prices to pay the tariff, and those importing can sell goods at a lower price. However, in the long run, both countries suffer because job growth slows, and it depresses economic growth. It also increases inflation, so the local currency buys less.
In the 1930s the U.S. passed the Smoot-Hawley Tariff that increased tariffs on other countries by over 40%. This law was passed when the country was in a recession and when other countries retaliated it reduced international trade by 65% and eventually led to the Great Recession and WWII.
Smoot-Hawley was passed to protect the farmers who were suffering from the damage from the “Dust Bowl,” but it also raised prices on food for the average citizen. With the current tariff battle, China has refused to buy soybeans and other agricultural products from U.S. farmers forcing the administration to offer a $12 billion stipend to offset their losses. However, even with government support, many smaller midwestern farmers are facing bankruptcy on their farms, and they will lose their livelihoods.
The Goldman Sachs Group (GS-N) has stated that the U.S.-China trade war could lead to a recession, and they expect no change until after the 2020 election. The GS-N Group indicates that these new tariffs will force companies to reduce their domestic activity in the area of capex spending, which is the investment and maintenance of capital assets like land, buildings, and equipment.
Finally, shipping companies, like the China Ocean Shipping Company, that transports goods between the U.S. and China, will also experience the slowdown as the tariff wars decrease the international shipping activity. In addition, because the trading relationship will also bring a change to the long-term agreements between the U.S. and China, it will at the same time create new agreements and trading partners on a global scale. This current trade war will have a lasting effect on trade and business.