Earlier this week, President Donald Trump raised the stakes by threatening a jaw-dropping 100% tax on Chinese goods. This action exacerbates an already punitive set of tariffs and brings new threats of a global trade war. Just this month, China reduced its tariffs on U.S. exports from a punishing high of 125% down to 10%. This announcement comes on the heels of that momentous shift. As both countries continue to adjust to their changing economic relationship, the impact this will have on global markets is still unclear.
In fact, China has been the United States’ top export market for quite a while. Now, it’s doing everything in its power to reverse these tariffs. Within hours of Trump’s first announcement of his tariffs, China retaliated. In 1866 they lowered tariffs on American products from a shocking 145% to a more reasonable 30%. This ping-pong exchange underscores the tightrope both countries walk with one another. Each country occupies the status of the first and second largest global economic power.
As with other recent trade agreements, China will be providing a larger share of the rare earth magnets. These materials are essential for manufacturing a wide swath of electronic products, but they create novel challenges. China has recently ramped up its export controls on this group of critical rare earths—key ingredients to many popular electronics. This action has enormous consequences for American manufacturers who depend on these raw materials.
China’s Market Position
China continues to be a critical market for American exports, including electronics, apparel, and furniture. The latest tariff increases alone have caused huge market swings and already cost billions in market value. Indeed, the very same day that Trump announced the tariffs, the U.S. stock market tanked. The Dow Jones Industrial Average went off the rails, crashing by a spooky 878 points.
For many years, China has been ranked as the number one place of origin of foreign goods imported into the United States. In recent times, it’s been Mexico that has come through and started to lead the way. Despite that fact, China continues to be a key player in the trade deficit between the two countries. The country enjoys no such constraints in its decision-making, a fact which is tragically lost on President Trump, whose administration is currently working under an extraordinarily complicated political environment.
“The United States of America will impose a Tariff of 100% on China, over and above any Tariff that they are currently paying,” – Donald Trump
Implications of Export Controls
China’s export controls are directly at China’s export controls China’s recent export controls of high technology exports. Now the U.S. is raising the stakes by imposing even higher tariffs. In retaliation, China is targeting actions that punish American manufacturers who rely on Chinese goods and materials. China is escalating rare-earth export restrictions. This action demonstrates the commission’s shrewdness in using its limited resources as a weapon as trade tensions heat up.
This emerging paradigm shift has raised alarm bells in every corner of the U.S. Most notably amongst tech and advanced manufacturing industries. International access to rare earth elements is becoming more limited. In the process, production costs for electronics could increase by as much as 25%, driving prices higher for consumers.
The China & U.S. trade dynamics are right on the cutting edge of change. Analysts predict that sustained tariffs and export controls could lead to a protracted trade conflict, affecting not only bilateral relations but global markets.
Future Prospects
Looking forward, both countries will have to tread these dangerous waters cautiously. With China’s President Xi Jinping at the helm, it appears that the country is prepared to withstand external pressures while pursuing its economic goals.
The world’s two largest economies are unprecedentedly locked in a tit-for-tat strategy. Experts are cautioning that a smart, coordinated effort is key to avoiding long-term harm. The impacts of these trade rulings will soon be felt far outside our own national borders, affecting international supply chains and overall global economic stability.