USA vs. China – Trump turns customs screw again

After a break of several weeks, trade talks between the USA and China took place again last week for the first time. Apparently, however, there was little willingness on the part of the Chinese delegates to accommodate American interests. Otherwise it is hard to understand that immediately after the end of the consultations there was talk of good talks, but the US President suddenly announced the introduction of further punitive tariffs on 1 September. Thus the trade conflict between the USA and China is now climbing a new escalation stage, after it had looked as if this cliff had been avoided at the G20 summit in Osaka.

Even if Trump believes that China is paying the tariffs, the negative effects will ultimately hit the US economy. US exports to China have fallen sharply due to retaliatory measures and were 18 percent down on the previous year in the second quarter. Agriculture, which was particularly affected by this, has now received around USD 30 billion in compensation. On the other hand, US importers are already having to bear costs of around USD 60 billion from the existing tariffs. From next month onwards, there will probably be additional burdens amounting to USD 30 billion, which will mainly affect consumer goods. With a few exceptions, these have so far been exempt from customs duties. These daily consumer goods include goods such as clothing, toys and other household goods.

So far, importers have mostly been able to absorb the burden of Trump’s customs policy by cutting costs elsewhere and have only occasionally passed it on to consumers or other customers. Only a few goods, such as washing machines, have become visibly more expensive since the beginning of the conflict. But private households are also feeling the financial burden indirectly. In some companies, for example, agreed wage increases have been suspended or planned hiring postponed in order to absorb the additional costs. The cost burdens for US companies are being dampened by the weakness of the Chinese currency, as was recently demonstrated. Ultimately, we assume that consumer burdens will be mitigated by transfer payments in the form of tax credits. Customs revenues amounting to around 0.8 percent of the gross domestic product give the Trump administration the necessary financial leeway.

Especially against the background of the election year 2020, which is approaching with big steps, a renewed escalation of the trade conflict is not too much of a surprise. It can be assumed that Trump’s voters will welcome the hard line taken against China. Only substantial substantial concessions from the Chinese side would justify signing an agreement. In order not to jeopardise his re-election as US President, he will continue to be entitled to any means at all. He even receives support from some democratic MPs. They have recently renewed their demand for an unchanged hard line against the Chinese Huawei group.

Ultimately, it is unlikely that the Chinese government will meet the essential demands of the US government in the short term and agree to extended market access for US products and especially for services. China will also have little interest in seriously combating know-how theft. Concessions in the import of agricultural products and food products are most likely. For good reason, Trump has therefore not yet gone so far as to impose punitive tariffs of 25 percent on all imports. So he still has this leverage at his disposal. The bottom line is that no quick end to the tremor is to be expected.

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