Many
market commentaries see tariffs and trade war as temporary events. But a
“forever” scenario would last the remaining years of at least, the Trump
administration. The President calls himself a “Tariff Man”.
Merrill
Lynch global economist, Ethan Harris, has said he expects trade wars to
continue over different issues and with trade partners. What is the goal?
If
the target is to give U.S. industries protection to redevelop and gain market
share from China and other lost-cost competitors, temporary tariffs will not
help. Why? The fundamental issue of productivity and labour costs is not
addressed. Capital flows happen if investors believe protection is permanent
not temporary.
What
is the impact of U.S. tariffs on China?
Almost
USD15.3 billion in duties imposed by Trump in 2018 were assessed on imported
goods from China. And U.S. importers are responsible for the duties. So U.S.
businesses and consumers pay the higher costs. Tariff revenue does not
compensate losses borne by consumers on imports. Actual data on tariffs and
trade from 2017 and 2018 showed foreign firms did not absorb the tariffs and
its full impact was borne by U.S. firms and consumers. Main victims were
farmers and blue collar workers – people who had supported Trump.
Among
the Group of 20, China and U.S. are two least trade exposed nations.
What
that means is China and U.S. are not really impacted by trade wars and tariffs.
So this could go on for sometime, until Trump is removed or is not re-elected.
For someone who supposedly wrote about “The Art of the Deal” he really lacks
sense in coming to any sensible solution!
References:
1.
Yes, Trump tariffs are costing billions.
No, China isn’t paying, The Star Online, 8 May 2019
2.
Trade talks are foundering on mistrust
and arrogance, David Fickling, TheEdge Financial Daily, 8 May 2019
3.
The US could be locked in a “Forever Trade War” that no one sees coming, Steve
Liesman www.cnbc.com
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