- China announced that they will impose tariffs on $60 billion worth of U.S. goods just days after the U.S. announced it will impose tariffs on $200 billion worth of Chinese goods.
- After months of trade negotiations between the U.S. and China, the U.S. escalated tensions once more, claiming that China was backing out of key parts of the trade deal.
- Many experts believe the increased U.S. tariffs will hurt U.S. consumers and the economy, despite President Trump’s claims that they will only hurt China.
China Bites Back
China announced Monday that they will raise tariffs on $60 billion worth of U.S. goods, a move that came as a response to the Trump administration’s decision Friday to impose tariffs on $200 billion worth of Chinese goods.
The Trump administration’s efforts targets existing tariffs by raising taxes on those $200 billion worth of Chinese goods from 10 percent to 25 percent. Though it has not been formally announced, President Donald Trump also plans on placing new tariffs on essentially all goods imported from China, according to a statement from U.S. Trade Representative Robert Lighthizer.
“The President also ordered us to begin the process of raising tariffs on essentially all remaining imports from China,” Lighthizer’s statement said, “Which are valued at approximately $300 billion.”
China responded to this by announcing that starting June 1, they will raise their tariffs as high as 25 percent on U.S. goods that used to be taxed at 10 percent. The tariffs will apply to nearly 5,000 U.S. goods, and the steepest tariffs will apply to animal products, seasonings, live plants, a range of fruits and vegetables, and more.
While the new tariffs appear to be somewhat of a numbers game on the surface, it begs the question: What does this mean for the bigger picture?
There are two main implications here. First, what these new tariffs mean for the ongoing trade war between the U.S. and China; And second, what impact the Chinee tariffs will have on the U.S. economy and U.S. consumers.
Trade War Implications
Trump has long accused the Chinese government of hurting off U.S. consumers and businesses by stealing intellectual property from the U.S, unfairly subsidizing domestic companies, and flooding international markets with cheap goods causing U.S. companies to go out of business.
Since January 2018, the two countries have seen an ongoing cycle of the U.S. imposing tariffs on Chinese goods, and China responding by doing the same. All of this has amounted to what is essentially a tit-for-tat trade war.
However, in December, the escalation seemed to slow when the two countries agreed to negotiate a trade deal. For months, it seemed like China and the U.S. could reach an agreement. Then, despite numerous claims from Trump and his administration that the talks were going well, Trump decided to raise the tariffs last week amid highly anticipated negotiations.
Trump has argued that U.S. and Chinese negotiators failed to reach a deal during trade talks last week because China had backed out of major parts of the deal. China denied these accusations, saying they just wanted to renegotiate parts of the deal that they believe infringe on Chinese sovereignty.
Despite the recent escalation, the deal is still not off the table. Neither the U.S. tariffs nor China’s go into effect immediately. As noted above, China’s tariffs go into place on June 1, and the Trump administration structured its tariff increase so that they will not go into effect for a few more weeks, giving both sides time to negotiate.
The question that remains then is whether or not they can reach an agreement. Numerous Chinese officials have said they wish to resume trade negotiations, a point that was reiterated in the Chinese Finance Ministry’s official statement announcing their retaliatory tariffs.
“The Chinese side hopes that the US will return to the correct track of bilateral economic and trade consultations and work together with China to move toward each other and strive to reach a mutually beneficial and win-win agreement on the basis of mutual respect,” the statement said.
Trump for his part expressed his desire to negotiate a deal, but also appeared to threaten China in a series of tweets Monday, writing “China will be hurt very badly if you don’t make a deal”
Impact on the U.S. Economy
Trump also tweeted Monday morning saying that there is “no reason for the U.S. Consumer to pay the Tariffs.”
“There will be nobody left in China to do business with. Very bad for China, very good for USA! […] China should not retaliate-will only get worse!” He continued in the same thread.
That brings us to the second implication these tariffs have, which is the impact on the U.S. economy. As he said in those tweets, Trump has repeatedly argued that the tariffs will hurt China and not U.S. consumers.
In the same thread of tweets, Trump said consumers could mitigate the financial hit caused by the tariffs by buying American-made products or products manufactured in countries that are not subject to the tariffs, like Vietnam.
However, both trade experts and business groups have said Trump often is wrong in his characterization of how tariffs work. Tariffs are taxes paid by U.S. companies to buy foreign products, which means those taxes are not paid by China, but companies like manufacturing firms and other producers that need Chinese products.
When taxes are imposed, it makes Chinese products more expensive. However, it does not lower demand for those products from U.S. companies that need those Chinese goods to operate, and now have to pay more.
This specifically includes U.S. agriculture companies, which have already been hit by the new penalties, prompting a $12 billion bailout from Trump last year. Trump has said he will seek an additional $15 billion in from U.S. taxpayers to give to farmers.
All of this to say that the tariffs imposed by the U.S, can end up hurting U.S. companies and economic growth in the U.S. as well as China. This was a point that was made by Trump’s National Economic Council Director Larry Kudlow, who contradicted Trump last night in an interview with Chris Wallace, the host of Fox News Sunday.
“It’s not China that pays tariffs,” Wallace said. “It’s the American importers, the American companies that pay what, in effect, is a tax increase and oftentimes passes it on to U.S. consumers.”
“Fair enough,” Kudlow responded. “In fact, both sides will pay. Both sides will pay in these things.”
U.S. investors are also worried about the impact of the tariffs.
“The costs of U.S. tariffs have fallen entirely on U.S. businesses and households, with no clear reduction in the prices charged by Chinese exporters,” Goldman Sachs analysts wrote a note to investors on Monday. “The effects of the tariffs have spilled over noticeably to the prices charged by U.S. producers competing with tariff-affected goods.”
Investors clearly responded Monday when U.S. stocks fell by triple digits. The S&P 500 and the Dow saw their worst day since Jan. 3, while the Nasdaq had its biggest drop this year. Stocks closed with major market averages falling by over two percent.
See what others are saying: (The Washington Post) (The Wall Street Journal) (Fox Business)
China Cautiously Crawls Out of Zero COVID Policy
Estimates put the number of people who will die if China fully reopens between 1.3 and 2 million, but higher vaccination rates could limit the death toll.
People Go Back to Bars
The Chinese government has begun to ease some of its notoriously strict pandemic lockdown measures, signaling that the end of the “zero-COVID” policy may be on the horizon.
On Monday, commuters in Beijing and at least 16 other cities were allowed to board buses and subways without a virus test in the previous 48 hours for the first time in months.
In Shanghai, visitors to most sites will require a negative test within the last week, rather than the last two days, though schools, hospitals, and bars will require one within the past 48 hours.
Dining in restaurants in some parts of Beijing is still prohibited, but bars and restaurants in many areas of the country are reopening.
In Urumqi, where anti-lockdown protests erupted late last month after an apartment fire killed 10 people, authorities said in a statement Monday that malls, markets, and other venues will reopen.
Zhengzhou, the central city home to the world’s largest iPhone plant which was last month rocked by violent unrest, will no longer require COVID test results for public transport, taxis, and visits to “public areas”, authorities said in a Sunday statement.
Beijing authorities had required registration to purchase fever, cough, and soar throat medicine, which they believed people were using to hide their coronavirus infections, but that mandate has been lifted. Certain districts in the capital also announced that some residents may self-isolate inside their homes rather than being forced to quarantine in a centralized facility.
Is China Ready to Reopen?
Vice Premier Sun Chunlan, who oversees COVID efforts, said last week that the country’s health system had withstood the test of the virus and that the omicron subvariant is less deadly than previous strains.
But there has not been a significant drop in cases recently to prompt the easing of restrictions. On Monday, the government reported 30,014 new cases, down from last week’s peak of over 40,000 but still near record highs for China.
Some observers speculate that the government’s move was related to the recent protests, in which thousands of people poured onto the streets of several major cities to demand freedom and an end to the zero-COVID policy. Authorities cracked down on demonstrators, and any mention of the protests was rigorously censored on Chinese social media.
There was no sign of any significant unrest this weekend.
Although many people are excited to enjoy less restricted lives and restart a shuddered economy, others are concerned about the public health consequences reopening society could incur. Estimates put the number of people who will die from the coronavirus if China fully reopens between 1.3 and 2 million, but higher vaccination rates could limit the death toll.
Last week, the government launched a campaign to vaccinate the elderly population.
Only about 40% of people over the age of 80 have gotten their booster shot, according to official statistics.
Health experts and economists say vaccination rates and ICU preparedness won’t be sufficient to fully end the zero-COVID policy until mid-2023 or 2024.
See what others are saying: (BBC) (Associated Press) (Reuters)
India Pedestrian Bridge Collapsed 4 Days After Renovations, Killing Over 100 People
The company responsible for the upkeep of the Morbi bridge did not obtain a safety certificate before re-opening.
After seven months of renovations, the Morbi walking bridge in India opened to the public. Four days later, the bridge collapsed, killing more than 130 people.
According to the local government, there were about 200 people on the bridge when it collapsed on Sunday, despite its capacity of 125.
During a campaign event on Monday, India’s Prime Minister Narendra Modi said the state government had set up a committee to investigate the tragedy.
“I assure the people of the country that there will be nothing lacking in the relief and rescue efforts,” he stated.
Along with the investigation, the state has launched a criminal complaint against Oreva Group, the company responsible for maintaining the bridge. Oreva Group reopened the bridge after renovations without getting a safety certificate from the government.
In response, Oreva Group spoke to a local news outlet and blamed those on the bridge for its collapse.
“While we are waiting for more information, prima facie, the bridge collapsed as too many people in the mid-section of the bridge were trying to sway it from one way to the other,” the group claimed.
The state government has offered compensation for the families of the deceased, but that is not enough for some. One father whose wife and two children died in the collapse told VICE he wants answers and accountability.
“Why were so many people given tickets? Who allowed them? Who is answerable?” he asked.
Indian police have arrested nine people including ticketing clerks and security guards for failing to regulate the crowd, according to Reuters.
Xi Jinping Tightens Grip on China by Eliminating Rivals
Despite the staggering power grab, Xi faces geopolitical competition from abroad as well as social and economic instability at home.
Xi Surrounds Himself With Allies
Chinese President Xi Jinping shook up politics over the weekend when he revealed the government’s new leadership, almost exclusively composed of his own hardline loyalists.
Six men — Li Qiang, Zhao Leji, Wang Huning, Cai Qi, Ding Xuexiang, and Li Xi — will form the Politburo Standing Committee, China’s top ruling body.
The four new members are all Xi loyalists, pushing out Premier Li Keqiang and the head of China’s top advisory body Wang Yang, two key party figures outside Xi’s inner circle who retired despite being eligible to serve another term.
For the first time in a quarter-century, China’s 24-member Politburo will be made up entirely of men, underlining the exclusion of women from Chinese politics.
An official account of the selection process said that a top criterion for leadership was loyalty to Xi, and rising officials must stay in lockstep with him “in thinking, politics and action.”
Topping off the developments, Xi officially secured an unprecedented third term as leader, something that was only made possible in 2018 when the government abolished term limits on the presidency. The weekend marked China’s greatest consolidation of political power in a single figure in decades.
As the 20th Communist Party Congress came to a close Saturday, China’s former leader Hu Jintao appeared reluctant as he was suddenly and inexplicably escorted from his seat next to Xi out of the Great Hall of the People.
Some commentators have argued that a tightly knit band of yes men may help Xi fend off internal party dissent, but it could ultimately result in poor governance as his subordinates fear giving him bad news.
The Arc of History Bends Toward China
Despite the extreme concentration of political power, China’s Communist Party stares down a gauntlet of challenges both foreign and domestic.
Beijing remains locked in a strategic competition with Washington, which has sought to contain the East Asian rival’s rise as a global superpower, but the past week’s congress may portend a stubbornly defiant China for years to come.
Xi is expected to use his firmly secure position within the party to pursue his agenda in full force — by strengthening Beijing’s claim over Taiwan, expanding China’s economic foothold in developing countries, and achieving self-sufficiency in strategic technologies such as semiconductors.
At home, China’s economy has faltered during the pandemic, with high unemployment, low consumption, and slow economic growth putting pressure on a government that stakes much of its legitimacy on promises to deliver prosperity to the population. Between July and September, the country’s GDP grew by 3.9%, according to official data released Monday, which is above many analysts’ expectations but still far below the state’s target of around 5.5%.
China’s National Bureau of Statistics postponed the data’s publication last week ahead of the 20th party congress, reinforcing concerns that Xi’s leadership will put politics before economics.
Monday’s announcement roiled stock markets, with Hong Kong’s Hang Seng Index plunging 6%, as well as the Shanghai Composite and the Shenzhen Composite Index both falling by about 2%.
Beijing has also seen increased political resistance from the population, from anti-lockdown protests in Shanghai to widespread mortgage boycotts over delays from real estate developers.
Last week, a man unfurled two large banners from an overpass in Beijing and called President Xi a “dictator” through a megaphone.
Such small-scale demonstrations are not new, but they took place in the capital just before the congress drew enough attention for photos of the stunt to go viral on social media, where an equally swift censorship campaign stamped out any mention of it.