Published: Sun, September 23, 2018
Worldwide | By Gretchen Simon

Here’s why the market is looking past the trade war

Here’s why the market is looking past the trade war

We're still not talking about cataclysms here: China's trade to the U.S. accounts for less than a quarter of its total exports, and its exporters will still get paid for what they sell.

The president boasts that the latest measure will bring in a lot of revenue.

Beijing has tried to appear restrained by doing no more than matching Trump's penalties. Clearly, a negative development for the sake of the world economy, as it increases uncertainty for companies and risks hurting global trade if these trade restrictions are made permanent.

A bad policy just got a lot worse.

Because China said Tuesday that it would retaliate, Trump is now in a position, some analysts noted, in which he must follow through on his threat or lose credibility.

Unlike the first two rounds of tariffs totaling $50 billion, the new taxes launched by Trump would more directly hit American consumers.

This week saw an escalation in the tit-for-tat trade war between the U.S. and China.

US multinationals such as Tesla and ExxonMobil have announced huge investment programs in China recently, casting ballots of confidence in favor of Beijing.

Walmart, the biggest USA retailer, warned the Trump administration the newest round of tariffs on imported Chinese goods could prompt it to raise prices on products from shampoo to bicycles to food. Thus, with China's announcement the next day, it appears that their battle over trade is likely only to intensify. The National Retail Federation in the US warned that duties will lead to higher prices and even product shortages.

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The American Chambers of Commerce in China and in Shanghai said last week that half of more than 430 companies that responded to a survey say they have suffered from slower customs approvals and been subject to more environmental and other inspections.

The Bloomberg report did not specify the countries that could enjoy lower Chinese tariffs.

Trump's basic goal is as ill-informed as his method.

The US trading relationship with China has been the most fraught, and has escalated dramatically in the past week.

In one high-profile example, the 2014 charged five officers in China's People Liberation Army for computer hacking and economic espionage against six U.S. companies, including Westinghouse, U.S. Steel and Alcoa.

These aims are achievable. "Their economy is export-led, they can´t afford for it to go out of control", he told Reuters. But to encourage these changes, the United States needs to nudge China's government to adopt them as part of its own internal reforms. "In the long run, I think it will work out well, as both China and the USA stand to gain tremendously by coming to good terms".

But China's leaders have ambitious plans to turn their country from the world's low-priced manufacturer into a technological power in fields from robotics to quantum computing. It will continue to invest and seek to become self-sufficient in key advanced technologies. The firm works with global firms like Airbus, Flex and Honeywell.

Earlier, the Trump administration signaled that it might be willing to settle for a reduction in America's massive trade deficit with China, $336 billion previous year. With luck, that will be the moment for Trump to declare victory and retreat.

The trade war has started to hit Chinese cities and provinces, especially those that depend on USA order books. Between now and then, Trump should try to make it easier, not harder, for Xi to strike a deal.

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