I have a sideline building open source hardware, I build and warehouse in China and sell all over the world .... I don't see these tariffs, I don't send the US govt money each time someone orders something, I just send stuff by mail to customers, they're the one doing the importing and end up paying local taxes in whatever country they live (just as I pay taxes importing stuff here in NZ when appropriate).
People seem to forget that this is a really just a new tax that's being paid by Americans
And if the Americans decide that the increased tax makes the total price more than what they want to spend, they'll stop buying your products. That is the intention behind these tariffs.
The goal is to force companies to move the manufacturing they took to China back to the US. The only reason companies manufacture in China is price. It is cheap to manufacture in China and then import it. Make it expensive to import from China and the companies will be forced to move manufacturing back.
It's quite simple actually. This tariff is essentially is price disadvantage for China made products; products made in the US now have a relative advantage. So this is done in the hope that it will make sense for people to buy US made products and will also encourage local (US) companies to manufacture and sell in the States (since the tariff protects them from competition).
It's a great move IMHO. I visited a WTO (world trade org) event in Mumbai recently and the US representative (https://en.wikipedia.org/wiki/Richard_N._Haass) was somewhat happy with what Prez. Trump is doing with import duties.
I think it's largely a zero-sum-game - WTO rules allow a country targeted with unilateral trade sanctions to respond in equal measure without sanctions - which China is doing.
Unlike a communist country they're free to pick targets that are political targets, in particular they're being smart, going for Trump's rural base. Meanwhile real people, in both countries are losing their livelyhoods.
If I get your point right, I think that depends on a few things:
(1) how much the 'Trump's rural base' in question depends on the Chinese market for their exports (not as much as the reverse IMO);
(2) Whether US cos. will be able to take advantage of the higher tariffs on China made goods and hence sell more (therefore increase / stabilise employment);
(3) If it doesn't really impact imports from China, and Americans just end up paying higher prices due to the tariffs, then how the GOV uses this new income from the tariffs? This could be used to strengthen local industry and increase employment, etc.
> which China is doing
China was doing this either ways by levying high import duties on products brought in to China, while US practiced free market and low key became somewhat of a victim to subsidised Chinese manufacturing.
Disclaimer: my views may be naive, and would love to be corrected or given more insight on the subject to prove my view otherwise.
I'm pretty sure that prior to this silly trade spat China simply charged their national sales tax (17%) against imports - which is fair since that puts imports on a level playing field with local products. This is not unusual, NZ, where I live, does the same thing (15%). US states with sales taxes do too.
I think China is targeting pork and soy beans (lowest prices now in a decade)
> prior to this silly trade spat China simply charged their national sales tax
Not true. Developing countries like China and India have long imposed "import duties" (aka customs or tariff) on certain categories of products to safe guard local industry and employment while making special trade agreements only with a few countries.
They even change the tariffs on a yearly basis without caring about consumers of imported goods in their country (prices of imported cars and items like the iPhone vary every year in India).
Because it's below the $800 minimum on which import duty is required for a parcel imported by a single person on a single day. So Amazon would have to pay the duty on whatever they import, and you wouldn't.
It does become a loophole if the duty is much higher than the price of shipping.
Fair enough, but this protects local businesses trying to compete with imported goods from China, since Americans don't have to pay the taxes (tariff) in question for goods made in the US. It's been like this in India for decades, and as a small, profit centric business person, I take it with a sigh of relief.
I think there are two answers to that. The first is you are a small time player. The medium to big players do have to abide by the tariffs. And what they do is shift the factories and supply lines to other countries or back to US. The cost to consumers will be the same - for the company, it is a large upfront asset purchases that depreciates over time, and expense reduction over time.
The second is US is introducing a bill to have USPS start collecting electronics information on merchandises so customs inspectors can screen parcels for fentenyl and others. If your customers didn’t declare your goods correctly, and didn’t pay the tariff, the goods might be detained or disposed. Which would then mean troubles for you and your customers. Your customers might buy from other vendors after figuring out that buying from China isn’t worth the hassle
I think it's more that the tariffs apply to the US importers, not to the manufacturers (unless they are the same people) - when you buy something from me (or Aliexpress for that matter) you are the importer, when you buy an iPhone Apple is the importer
Agreed. However do you see the 'retaliatory' tariffs imposed by China? At least, I hear from US media that China is apparently imposing similar tariffs, wondering if the categories are similar (or if they even have as large an impact as the US ones).
These tariffs aren't new to China however. Do import duties ring a bell? Countries like China and India have been imposing (and raising) them on various products for many reasons (mostly protecting local industry, generating employment, etc).
Import duties in the US however, have been relatively non-existent. To give you an eg: A non local made car that costs $60k in the USA costs $150k++ in India (and duties make petrol here more expensive too).
Not yet, but I haven't done a new build recently - I think that China's aiming more at farm imports rather than chips so I'm probably OK (besides China let's me claim back any taxes I pay when I re-export a manufactured product)
Are you sending from where you warehouse in China? Then maybe your parcels will attract attention and get hit by the tariffs. If you are shipping from NZ then I would guess not, and maybe you even have a new found advantage compared to competitors shipping from China, assuming there are competitors in your space.
shipping from China is far far cheaper than shipping from NZ (or almost anywhere else) it would almost double the cost of my products - NZ shipping costs would be higher than US tariffs - >90% of my customers are NOT in the US
The US is also applying tariffs against other countries too.
>>People seem to forget that this is a really just a new tax that's being paid by Americans
More expensive items are less likely to be bought, people have choices, so don't dismiss that so easily. Trump hopes that China caves in and makes concessions, giving better terms to USA companies. Less sales means less jobs in China, less dollars in their forex accts etc etc.
Is there a simple chart somewhere that shows what are the old and new tariffs for the most commonly imported items. I'm just confused with hearing these large generic tariff news. Something like PCs- was 10% now 25%, Tshirts- was 10% now 50%, etc.
The 25% is additional. So for the goods I import I still pay the old tarriff schedule but now I have a 25% line item tarriff that is additional to the existing tariffs.
Goods that are purchased from China will rise in price. If China decides to retaliate, and they will, anyone who sells to China will see sales drop and losses pile up. Since the Chinese are likely to target based on American politics (think rural red states), the US government will probably step in and offer emergency loans or cash if it gets bad enough, pushing US deficits higher.
There will also be some strange third order effects for Europe and other trading partners, but it’s beyond my skill with economics.
China will quickly run out of American exports that they can selectively (politically) tariff. In fact, they will eventually run out of ANY goods that they can tariff that are not already already tariffed much before the US does due the huge trade imbalance.
It’s unclear to me how solid the Chinese economic position actually is. It’s possible that their high debt load will mean that they have to fold very quickly.
On the other hand, as an authoritarian regime they can handle much more political pain. You have to hurt China badly enough for them to fear revolution before politics alone will break them.
In the other direction, all China has to do is make republicans deeply unpopular before the next election. This would reinforce democratic chances, and increase the likelihood of Congress putting a stop to this whole trade war.
But the US has a trade surplus over China in Services exports into China. Presumably those will get tariffed.
Also, US made products that relied on chinese intermediate products will go up in price, passed on to consumers.
Those same US products will not be export competitive in other countries (because input costs increased with tariffs) and thus China can now export to places that US used to export to.
Trade is not that simple and usually needs negotiations to be win-win.
"Goods exports totaled $129.9 billion; goods imports totaled $505.5 billion. The U.S. goods trade deficit with China was $375.6 billion in 2017."
"Trade in services with China (exports and imports) totaled an estimated $75.0 billion in 2017. Services exports were $57.6 billion; services imports were $17.4 billion. The U.S. services trade surplus with China was $40.2 billion in 2017."[0]
Seems to be an order of magnitude of difference, setting aside possible tariff rates.
I expect prices to go up (across the board on such goods) in China, and US companies who are more price sensitive will get hit harder on their upcoming 10k's than others, predictably.
And the US will quickly run out of goods that they can selectively tariff that will not immediately and harshly hurt the broad public in a clearly visible way. You already see that in this recent round - Apple gadgets being exempted from the tax is not a random coincidence.
The problem is: the entire US consumer population is addicted to electronics, and the only place where modern consumer electronics can be manufactured at scale today is China. Not because of cheap labor (there are actually way cheaper places today), but because the complex production chains necessary to even get all the parts to a single place for final assembly are all door-by-door in places like Shenzhen. Even if there was a serious intent to move these production chains to the US to escape tariffs, it will take multiple decades to do so and will require extremely high up-front investments. And nobody will start such an endeavor during a phase of special tariffs put in place by a president basically for personal reasons, without serious support even from his own party - a president that will eventually stumble over its own foolishness and thus probably not even reach the end of his theoretical 8-year "lifespan" (which, again, would not suffice when we're talking about a process that spans decades).
So, effectively, the US presidents' capability to impose tariffs end when he arrives at consumer electronics goods. Because his reality distortion field is not capable of making his followers just accept prices of iPhones, Apple Watches, TVs and countless other "Made in China" gadgets to rise by 25%. The good thing about a bunch of mindless zealots on Twitter and Facebook is, after all, that they hugely depend on smartphones, computers and cheap plastic routers, and the good thing about Fox News addicts is that they can't watch Fox News without a TV set.
Idk, I see it hard for there to be riots in the street because electronics go up a bit, unless one subscribes to the Jamie Dimon's train of thought:
“‘It’s not right to say we’re worse off,’ Dimon said [last September 17] at an event in Detroit in response to a question about declining median income. ‘If you go back 20 years ago, cars were worse, health was worse, you didn’t live as long, the air was worse. People didn’t have iPhones.’”[0]
Though I do see it being a bloodbath on the stock market (that significant portion of adults have 0 exposure to compared to the wealthy) if iPhones become non exempt, possibly a ringing bell for market top (ignoring that unit sales have already been declining since 2015) of this 10 year bull market and experiment with ZLB interest rates.
There doesn’t have to be riots for China to succeed at this, they just need a large democratic victory. They know that the democrats will try and put an end to the trade war if they control congress.
Even if there is a large democratic victory and top of that, if the political establishment manages to turn everything around the under the watch of the current present (or the next), if they still cant address the issues that have been building for decades in the US, they'll have a field day when next aristocrat takes office on nationalistic pandering.
The trade war™ is a symptom of a larger problem that neither major political party has been bothering to address for the past couple of decades because major backers have been profiting very well of it personally.
China and the US have bigger problems looming than this trade war™. I find it really hilarious that x% more expensive electronics that people don't really need year after year is the rallying cry to wreck in into the voting booth.
One example of this is the Trump administration recently giving $4.7B in welfare to soybean farmers, as China raised tariffs on soybeans, something which the US exports to them - that, and farmers being part of Trump's electorate
The goal of the tariffs is to make Chinese produced products less competitive against American produced products. For instance you sell widgets. You can take advantage of abysmal labor conditions in China to have these widgets manufactured and produced for $70 there. Or you can have them produced in America by laborers who work in much more pleasant conditions and are legally obligated to higher wages for $100. For a company that's just interested in maximizing their bottom line, it's not much of a decision. But then imagine tariffs suddenly mean the costs become comparable. Now you have a strong economic incentive to use American labor.
Completely free trade sounds great on paper, but in reality it basically just ends up rewarding the lowest common denominators of the world in labor conditions. $1000 iPhones are produced in factories in China where each worker earns several dollars per day and live in on-site dormitories literally surrounded by so-called 'suicide nets' to try to deter impulsive suicides caused from both living and working in such conditions. In the US we'd never accept such conditions, yet in the process of trying to improve the standard of labor in the US we ended up causing companies to simply fire their American workers, and then shift all their labor overseas -- sending trillions of dollars in incentives to the countries with the worst labor standards on this planet. That this hasn't been as much of a political issue to now emphasizes how much both parties in establishment politics are indentured to corporate interests.
Even if China retaliates (more than they already have), their economy is way more dependent on physical exports to the US than the reverse. I see more downside risks being exposed to EM than US markets… though I do see US markets catching up soon, esp companies with large exposure to EM revenue flows.
This has been a good year to be short EM and swing in and out of volatility.
We are currently running a $375 billion dollar trade deficit with China. That means each year they receive a net gain of $375 billion in trade with us. And ironically the Chinese already had disproportionate tariffs against numerous American exports. A handy tool on Google is search by date range (wish DDG had this). Search for 'Chinese tariffs' on google with a date range of 2000-2015. You'll find articles such as this [1] referencing China's minimum 25% import tariff on American vehicles contrasted against 5% from the US.
Or articles such as this [2] which I will leave without further comment, since that's an entirely different topic...
Something I've been wondering about this. China is retaliating with tariffs against, for example: Sinograin [1]. What exactly is the point of this tariff when the company being taxed is, like many big companies in China, state owned? Aren't they essentially just taxing themselves?
I'd expect that was just an amusing incident of the left hand not knowing what the right is doing.
Throwing out tariffs on the US farm industry is probably a smart move from a political point of view. Our farm industry is heavily subsidized and controlled by government programs. For instance we literally pay some farmers not to farm lands and in cases where harvests are unexpectedly high farmers can end up being prohibited from marketing some of their harvest. In extreme cases, this means the product -perfectly edible foods- just ends up getting destroyed. It's all about extreme control of supply to try to stabilize prices for the consumer and ensure farmers are a bit more insulated from the swings of the market, and to keep them farming (or potentially farming) year after year.
Anyhow, the point of this is that by imposing tariffs on American agriculture (thus reducing Chinese demand) you stand to force this system to respond very visible ways, such as for instance by increasing the number of farmers being paid not to farm or increasing the amount of harvest that can't be marketed. Imagine a photo of some US farmer surrounded by produce thrown to rot and a headline suggesting this was the product of the tariffs. Great propaganda that makes good headlines against the purpose of the tariffs. That a Chinese state company ended up paying the tariffs, rather than just achieving the end of reducing demand and thus hitting with some bad PR in the states, is something I'd expect is just a hilarious short-term miscalculation.
> Anyhow, the point of this is that by imposing tariffs on American agriculture (thus reducing Chinese demand) you stand to force this system to respond very visible ways, such as for instance by increasing the number of farmers being paid not to farm or increasing the amount of harvest that can't be marketed.
The only thing the tariff forces is Chinese companies paying it. This might in turn incentivize them to not purchase American produce which would lead to the effects you're describing. But why incentivize a company to do something if you're running the company? Can't you just tell them to do whatever it is you want them to do directly? Or are they not, in that sense, running the company?
We can only speculate but in this case I'd expect the order was part of a preexisting (or perhaps even prepaid) contract with the US supplier. Or perhaps this company had demands leaving them unable to cancel the contract even if it was possible. With a country of 1.4 billion and certainly the most expansive government in the history of our species, I wouldn't view the Chinese government as homogeneous. Even in our relatively tiny government one segment regularly engages in action much to the detriment or disagreement of another. In the longterm though I would expect this 'issue' to be 'fixed'.
I find it funny and scary that the US think they can win a trade war. The only outcomes I can see is 1) China wins 2) it ends in war because why the hell not. Everything the US does ends in war.
I'm having a surprisingly difficult time finding a nuanced view of these policies. On the one hand, china is taking advantage of us and is in part rotting our our middle class and blue collar workers. On the other hand, this could spark economic turmoil. Can anyone chime in here? Or is this beyond the scope of economics? (Not to dig on the field, bit we were told NAFTA we be great, look at the poverty in Mexico as a result.)
The people enacting these policies (Trump admin) argue that what we currently have is not trade, given how the Chinese have manipulated the markets, it is a one sided agreement. Free trade requires both sides not place restrictions on the others. Would you say this is true? Sometimes I feel like economic theory is like psychology, it seems real, seems like it has truth, but counter examples are abundant?
> On the one hand, china is taking advantage of us and is in part rotting our our middle class and blue collar workers. On the other hand, this could spark economic turmoil.
Actually, this is much more complicated than getting taken advantage of. Let us walk through an example:
When you're posting a message online on HN, we post using many chinese components going into your China-assembled HP laptop. Cost: $800.
A tiny tariff of 10% will just make the cost of that laptop go up. For the sake of argument, lets say it passes through to customers and that same laptop now costs you $880. We're already eliminating any benefits of tax cuts passed earlier this year.
At 25% tariffs, some components might start getting manufactured here. But the price of those components will be more than current Chinese imported price. Say, the price of that same laptop will go up to $1000.
So now you will be a proud owner of a laptop made in USA by shelling out $200 more.
And you might be fine with that cost for American patriotism. But here is the kicker.
HP laptops now cost $1000 in global market whereas other laptop manufacturers outside the US can still manufacture the same laptop for $800. Maybe HP (an American company) was able to sell laptops to Europe and India before. But not anymore. Because Lenovo can still make it for $800.
Lenovo just gained market (and revenue) from HP simply because of tariffs.
Trade is much more complicated than what we're giving credit for.
It's not just about economics. The China-watching community seems to be generally cautiously supportive of action against China, although not necessarily the action taking place, and certainly not some of the rhetoric around it. Overall, the fear is that China could become the world's superpower and dominate supply chains and control what the rest of the world says about it [1]. China would like to "dominate advanced industries like robotics, advanced information technology, aviation, and new energy vehicles" and become self-sufficient with their Made in China 2025 initiative [2]. This isn't popular with the West, and it has been reported that some Chinese journalists have been instructed to stop talking about it [3]. China also has a habit of intellectual theft [4] and only playing by international rules when it suits them.
One aim of the tariffs is to get China less involved in global supply chains [5]. This would be more likely to create jobs in Vietnam and Mexico than in America, but for strategic reasons this would still be good.
This actually looks like the start of the distanglement between the US economy and the Chinese economy. What will likely happens next (my best guess) is
1.) 40-60 percent of a company’s supply chain moves out of China
2.) China restricting the movement of capital/equipments out of China (similar to what happened with Korean companies last year)
3.) China growing homebrew competitors to the foreign companies leaving, part of the ‘made in 2025 in China’ strategy, via state enterprises or state spendings in startups. China will also make US companies’ operation in China very hard, either with license restrictions, or increased local ownership.
4.) China will disincentivize Chinese consumers from purchasing US (or foreign) products. Via propaganda, state media, others. This would be hard, as Chinese consumers prefer higher quality, higher brand value, and higher perceived value products.
5.) China will have to target US farmers with tariffs, as there isn’t much US imports to tax otherwise. Plus, there is the face saving situation.
6.) US will increase the tariff coverage to all Chinese imports, either triggered by tariffs on US farmers, or any other targets.
7.) China local governments will make a mistake of seizing a US owned corporate asset, or prevent a factory from shutting down by its owners. This will escalate the urgency for US companies to move out of China.
8.) 70-100% of company’s supply line will be out of China
9.) Eventually, most direct trades between both countries shrink. Down to a significant level where it starts to drop gdp for both countries (China way more than US)
10.) China will have no choice but to embrace its lost decade, ala Japan. It will tighten controls on its citizens. It will try to contain high inflation and high unemploment rate. It will try to unwind its debt for the next 10-20 years.
For me protectionnism could be a good thing environmentally like adhelas said. It could be a good measure if you use this tariffs to improve equality, distributing this equally through the population. Sadly nobody knows here the income will be spent.
By reducing imports from China, China will need to invest in their local market too and by doing that they will need to improve chinese worker conditions.
Yes, and in the last 50 years carbon emissions have skyrocketed, while wages have stagnated.
We are depleting the resources of the planet and polluting at an unbearable pace.
We have to change the economy and protectionism for me can be a good measure. If protecting the environment or health is good, why is protecting the economy bad?
What is the opposite of protecting? attack? If so, why does protecting something lead to a trade war? should not it be to attack an economy?
This area is full of self-righteous words like "free market" or "trade war". We cannot question something that is free? And a war is something that has to be fought at all times?
We need to see through this.
But it’s more efficient to mass produce rather than have every country producing everything it needs. On top of that, some countries have inherent efficiencies in producing some items - proximity to resources for example.
You have the effect "mix vs sort" that shows that if you are very good making thing you are bad distributing them. So mass production is not as effective as local production if you account transportation externalities.
Funny how the US has been advocating for trade while it was "winning" (read, giving worthless papers for real goods). Since now we are hitting a wall (competing economies asserting themselves, and willing to be freed from the dollar), and since the US prsident seems to disregard, or not aware, of the massive advantage that the dollar means for the US economy, a trade war has been started.
This war will either be won by the US on the short term, or the dollar will be dismissed as international currency.
That's my opinion. For me this protectionism could be a good thing environmentally, and even socially if the tariffs income are well spend. For instance if we spend this tariffs in a UBI we could use this to change the economy to a more efficient and local economy.
Poorer countries struggle to look after their environment, if China's economy is slowing they may be tempted to burn more coal or dump more waste in their rivers.
People seem to forget that this is a really just a new tax that's being paid by Americans