China’s Trade War: What Targeting These 106 American Products Will Mean

China and the United States have been going back-and-forth in an unofficial trade war for years, but this just escalated greatly.

China’s latest move has been to create new trade restrictions on 106 American products, totaling approximately $50 billion. But, the hostility has been brewing for some time — and it was not unprovoked. In prior years, China became disenchanted with America’s penchant for sending scrap that the Chinese government viewed as “trash.” Meanwhile, America has become embroiled in trade negotiations with many members of the global community, and this has created a retaliatory relationship with some.

China’s Quid Pro Quo

Earlier in the year, the Trump Administration levied tariffs on steel and aluminum exports against China and a number of other countries. Notably, South Korea entered into an amicable trade deal with the United States related to the quantity of metal that could be shipped. China has been less than receptive to these modifications, which are primarily intended to improve the domestic steel industry. With fewer sources of cheap, manufactured steel, domestic manufacturers may find the domestic steel industry the only viable option.

As a tit-for-tat, China has approved tariffs on a variety of American imports, including both fruit and pork. The Chinese government has been open about this being an action taken based on the perceived hostility of the earlier tariffs. This has all the makings of a low scale trade war, as each country is seeking to increase the economic pressure on the other. Further, China and America have had a long established, mutually beneficial trading relationship that may now be altered.

Ramifications of U.S. Steel Tariffs

The U.S. steel tariffs have had some significant consequences. These tariffs are not just impacting raw steel but also have an impact on products made with steel; as an example, the tariff will impact Reddi-wip and other metal canned products. Further, domestic steel producers may be forced to increase costs due to demand, which can ultimately lead to higher costs for any steel based products.

Further, the decision making process regarding many of these tariffs has been a unilateral decision from the United States administration, ultimately leading to a resentment that moves beyond the tariffs themselves. This is having consequences on a global scale.

Investing During the “Trade War”

Steel companies are going to see significant increases in profits whereas those who rely upon steel for manufacturing are likely to see at least short term adverse effects. Manufacturing companies are going to pay higher premiums for both steel imports and domestic steel, which will ultimately be transferred to the consumer.

Agricultural companies and the pork industry may be hard hit by these tariffs. The pork industry exports $1.1 billion in pork to China annually, making it the third highest market for pork. Soybeans and aircraft are also among the products that are going to be impacted. These products are going to be under a 25 percent tariff. Further, electronics as a whole may see their components becoming more costly.

Investors may want to consider their new investments strongly due to the consequences of these tariffs, as some may be quite subtle. Low risk investors may want to wait before making substantial investments until the economy recovers from the impact of these trading concerns.

Products and companies impacted are not necessarily obvious. Custom tool companies and HVAC companies rely upon steel, while farmers may find it more difficult to unload their agriculture. Further, the trade restrictions may not end here.

A World Still Watching

Canada, Mexico, the United Kingdom, and many other nations are all involved in the trade deals and negotiations that are ongoing. Just a few weeks ago, the South Korean deal became the first deal completed. These deals may have exponential, cascading impacts on the trade market and a number of related industries.

In short term, there is some confidence in domestic steel manufacture, as those within the domestic steel industry have a path towards substantially greater revenue and sustainability. However, this may last only as long as the trade restrictions.

Trade agreements are a particularly important part of the global economy, and due to the current volatility, it’s important that entrepreneurs and investors take everything into consideration when managing their new investments. When the dust does settle, there will be a mix of opportunities and challenges available, especially as pertains to the products impacted.

Regards,

Ethan Warrick
Editor
Wealth Authority


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