What’s new in U.S. – China trade wars and what could it mean for Canada?

The most recent U.S. – China trade war began with President Trump’s tariff on imports of solar panels from China in 2018. That, ironically, led to darker days to come in the U.S. – China trade relationship.

Let’s recap.

  • January 2018: The U.S. imposes a 30 per cent tariff on imported solar panels (most come from China) and taxes starting at 20 per cent on large residential washing machines.
  • February 2018: The U.S. proposes more tariffs, including 24 per cent on steel and 7.7 per cent on aluminum.
  • March 2018: The U.S. taxes steel imports at 25 per cent and imported aluminum at 10 per cent (Canada and Mexico are exempt).
  • April 2018:
    • Beijing imposes about $3 billion in tariffs on U.S. imports including on products like fruits, nuts, wine, steel pipes, recycled aluminum and pork.
    • The U.S. proposes a 25 per cent tax on nearly 1,300 Chinese goods from the aerospace, machinery and medical industries.
    • China announces another 25 per cent tariff on 106 U.S. products, including aircraft, automobiles, soybeans and chemicals, worth approximately $50 billion.
    • The U.S. calls for more tariffs, worth $100 billion.

Fast forward a year. A truce between the countries ended March 1, and the spat fired up again.

In May 2019, Trump:

  • Raised levies on U$S200 billion of Chinese goods to 25 per cent (from 10 per cent).
  • Threatened to impose additional 25 per cent tariffs on the remaining US$325 billion of goods China imports to the U.S.

What’s the bottom line?

With U.S. tariffs on more than US$500 billion in goods as well as China’s levies and restrictions on U.S. imports and investments, the dispute could top out at about US$900billion. And according to Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics in Washington, that’s historic.

“We have not had a trade war of that size since the Great Depression in the 1930’s,” said Hufbauer. “There’s no one alive today who’s seen something like it and it will have serious implications for the global economy.”

The U.S. will certainly feel the effects. According to Oxford Economics, by 2020:

  • The initial 25 per cent hike in May will cost the U.S. economy US$29 billion.
  • The cost to the global economy will be more than US$105 billion.
  • The U.S. will create 200,000 fewer jobs.
  • U.S. economic growth will fall below 2 per cent.

Here in Canada, the impact is not expected to be as harsh, but it’s not great.

Up-side: If Trump makes good on his threat to impose further tariffs on the rest of China’s imports, it would impact consumer goods like electronics, toys and sporting goods. That could mean new opportunities for Canadian businesses to sell into the U.S.

Down side: The resulting slow-down in the U.S. economy will leave consumers no extra money to buy anything.

Down side: If the trade war continues, it will negatively affect global GDP growth as well as the global supply chains American businesses count on for their goods. Canadians may have to pay more for consumer goods like television sets and tires.

Down side: A drawn out standoff could affect the performance of markets. Canadians could see their investments – particularly RRSPs – decrease in value.

What’s going to happen?

There’s no crystal ball, especially when it comes to the U.S. president. But China might blink first.

According to Suisheng Zhao, director of the Center for China-U.S. Co-operation at the University of Denver, the U.S. has a bigger economic advantage. “For China, no alternative is as big and lucrative as the American market.”

While there are U.S. players who are suffering – Iowan soybean farmers, for example, whose biggest market used to be China – the U.S. economy has continued to grow. If Trump really does impose additional tariffs on all Chinese goods, China could be shut out of the U.S. market, and that would be a huge blow to China’s economy.

In the end, there really aren’t any winners in trade wars, especially between two countries not exactly known as easygoing negotiators. “Both economies will suffer,” said Zhao, “although China will suffer more.”




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