1. Trump’s Tariffs on China – A Look at the Numbers
2. President Trump Has a Strategy – But Will It Work?
3. China’s Economy Weakens, Stocks & Currency Plunge
4. China’s Out-of-Control Public & Private Debt
Not long after I started studying economics in graduate school in 1975, I concluded that government-imposed tariffs on imported goods are almost always a bad idea. Ditto for trade wars. In general, the government has no business influencing the prices US manufacturers and others pay for the goods they import from abroad.
As we all know, however, China has been a really bad actor when it comes to trade. China is notorious for stealing intellectual property and coercing companies that want to do business there to share their proprietary technology with Chinese entities.
This is especially true for US companies doing (or attempting to do) business in China. President Trump routinely complains that China has been “ripping us off” for years. As a result, the president decided earlier this year to punish China by placing tariffs on Chinese goods that are exported to America.
As of yesterday, the US has imposed a 10% tariff on $250 billion worth of goods and services China sells to Americans each year. And Mr. Trump is threatening to more than double the tariffs if China retaliates. If so, that would mean we have tariffs on more than $500 billion in exports to the US.
There is broad agreement that something needs to be done to penalize China for this bad behavior. The question is, are tariffs the best way to go – because tariffs almost always result in higher prices paid by consumers, in this case American consumers.
The good news is that China’s currency has weakened this year, making Chinese goods cheaper to purchase, so US consumers have not experienced significantly higher prices – so far. But Mr. Trump plans to increase the tariffs from 10% to 25% on January 1st, which will almost certainly lead to higher prices for Americans.
There is a heated debate over how best to punish China for its bad behavior on trade. President Trump and his senior trade adviser favor tariffs on China, apparently the more the better. Others fear that when the tariffs go up to 25%, it will result in an all-out trade war with China. That’s what we’ll talk about today.