In an escalating trade war, nobody wins until a deal is done and the war is finished. There are casualties on both sides as both Pres. Trump and China’s President Xi continue to trade blows in an attempt to declare victory over the other. The problem is, China and the United States are both two of the world’s largest economies. This isn’t settling well with the rest of the world.
After Pres. Trump threatened to add new tariffs on Chinese goods, Beijing responded in a way that shows that they will not take this lightly. As Americans woke up this morning, the Dow futures were tanking upon news that China was going to allow their currency to sink to a new historical low. They are also telling state-owned companies not to buy U.S. agricultural products, signaling that the uneasy truce declared a few weeks ago is now over.
By lowering the value of the Chinese Yuan, it makes Chinese goods much easier to buy from foreign countries because those products are much cheaper. This is really one of the main areas of attack for China, as the United States dollar is one of the strongest currencies out there. That means more people are going to be buying Chinese products because they’re cheaper.
Recently, Mexico took the place of China is our country’s top trading partner. The number of imports we have coming from China has fallen about 12% at the start of the year. That means we’re buying less Chinese goods. The Pres. Trump is not happy about what he calls “currency manipulation.” It’s these tactics that have forced him into fighting this trade war to begin with.
“China dropped the price of their currency to an almost historic low,” Trump tweeted on Monday. “It’s called “currency manipulation.”
New Tariffs
Despite receiving many objections from his own advisors, Pres. Trump announced that he would place a 10% tariff on all remaining Chinese goods beginning September 1. Even stated that he could do much more than he is when it comes to placing tariffs, threatening that he could go from 10% to 25% or higher. He’s already backed up his threat by placing a 25% tariff on over $250 billion worth of Chinese goods, escalating the matter further.
One weakness China knows the US has is the impact of the trade war on our agricultural products. Our farms have taken a major blow, forcing the government to send billions of dollars in aid to our struggling farmers. A wetter than average spring also forced many farmers to get a late start on planting, if they even got a chance to plant at all, which will only add to the chaos come harvest time.
This is probably why Beijing also ordered state-owned companies to stop buying US agricultural products. This puts even more pressure on the system. China used to be the largest buyer of US soybeans, as much a 70%. But soybean imports to China have fallen 97% since the start of the trade war.
“China has strategically gamed the tariffs by slashing their prices and by devaluing their currency,” White House trade advisor Peter Navarro told “Fox News Sunday.”
“Since the tariffs were put in place back in 2018, the Chinese yuan fell by almost 10 percent, so they have offset virtually all these tariffs and the consumers are not seeing any price hikes in any significant way … We could have a bigger question about whether tariffs, in general, might cause rising consumer prices, but not in this case.”
