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The U.S. and China are hours away from a new round of tariffs on each other’s goods, with no improvement in relations between the two rivals in sight.
In a significant escalation, $200 billion of Chinese products will be subject to increased tariffs from 12:00 p.m. Beijing time on Monday, on top of the $50 billion in goods already charged higher duties earlier in the year. The combined $250 billion in products facing levies is almost half the value of imports from China last year.
Meanwhile, $60 billion of goods from the U.S. will become subject to Chinese higher tariffs around the same time, adding to the $50 billion already levied. That’ll mean about 70 percent of the value of goods China bought from America in 2017 face tariffs.
There are three major explanations for why the United States began its recent trade war with China
United States wants to reduce its trade deficit
We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S. Now we have a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion. We cannot let this continue!
— Donald J. Trump (@realDonaldTrump) April 4, 2018
The first is that the United States wants to reduce its trade deficits. US President Donald Trump tweeted on 4 April 2018 that ‘[the United States has] a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion. We cannot let this continue!’. Many US commentators think that the gargantuan imbalance translates into an incremental increase in US indebtedness to China, which they consider to be a huge vulnerability for the United States.
The United States wants to slow China’s progress toward being a high-tech superpower
The second is that the United States wants to slow China’s progress toward being a high-tech superpower. The main sectors in China getting hit are machinery, electronics and IT technology. This is tantamount to the United States’ directly targeting Made in China 2025.
The final explanation is that ‘Trump favours highly transactional exchanges’ and wants an increased stock of bargaining chips. Trump may well have begun a trade war with China now so that he can relinquish it later in exchange for cooperation over perplexing political and security issues.
Whatever the cause, China has been bashed by the trade war. Over the last five months, the Shanghai Composite Index — a barometer of the Chinese stock market — has plummeted by approximately 18 per cent and the Chinese renminbi has depreciated nearly 8 per cent. Because China is still export dependent, the trade war will make Chinese export firms lose approximately US$22…