Revisiting Trump’s Trade War — is a Deal with China Imminent?

Big news was made earlier this month when U.S. President Donald Trump sat down for dinner with China President Xi Jinping at the G-20 summit in Argentina. But the news wasn’t just that the two met amid an escalating trade war between the two nations. No, following the dinner it was announced that the two nations would be halting – at least temporarily – further actions on goods set to go into effect in 2019.

For the U.S., this means no tariff increase for the time being. Currently at a 10 percent tariff, tariffs on $200 billion worth of Chinese goods were set to increase to 25 percent in 2019.

It’s promising news that a new trade deal with China – one of President Trump’s campaign promises – is well on the way. And certain things have occurred in subsequent days to suggest that this is closer to becoming a reality. This post will take a look at some of these signs as well as what effect – if any – the imposed tariffs have had on the U.S. economy to date.

Just over a week following the Trump-Xi dinner at the G-20, news broke that China is significantly reducing its tariffs on U.S. cars. Though details are a bit mum, several news outlets have reported that the tariffs were slashed to 15 percent. Previously, they were at 40 percent, a number that was settled on this past summer to retaliate for tariffs Trump had placed on Chinese goods. Not surprisingly, auto stocks jumped following these reports.

Of course, the two heads of state have more to hash out than that…

On the surface, you’d think the recent Marriott data breach – which impacted about 500 million customer records from 2014 to 2018 – wouldn’t have anything to do with China. However, current investigations into the matter have shown the hack may have originated in the Chinese government. This is actually a significant development, and it could give the U.S. further leverage in trade talks. Why? Because in 2015, the Obama administration inked an agreement with President Xi that called for an end to trade secret theft. Though an informal agreement, the Marriott hack could be used as bargaining leverage to show China that they haven’t been ethically operating when it comes to cybersecurity.

Despite all of this, tariffs remain the talk of the town.

Just what effect have the tariffs on Chinese goods had on the U.S. economy? According to economists with the Economic Policy Institute, nothing negative. In a new Economic Policy Institute-authored report, the 10 percent tariffs on steel and aluminum that were announced last March have not had any “broad, negative” effects. In fact, the report states the tariffs have worked exactly how they were intended to work. The report also states that since the tariffs were announced, a trio of smelters restarted and one even added additional capacity. On the aluminum side of things, about 300 jobs and $3.3 billion have been added to the economy. Overall, manufacturing is booming, having added some 200,000 jobs prior to the tariffs being implemented.

While the report paints a positive picture on the decision to impose tariffs on Chinese goods, other economists are quick to point out how the country likely hasn’t seen the full impact just yet, as it’s still working its way through the economy. It’s why, going back to the beginning, the meeting between Trump and Xi – and the subsequent ceasefire on trade – is a good step.

Where do things stand post-G-20? Earlier this week, the U.S. and China had a brief call on trade talks and kicked around some ideas. Beyond that, details are thin and both sides are being vague on timeline goals and specifics. But consider this: The tariff truce with China is for 90 days, so there’s reason to believe that both sides are working toward an agreement before those 90 days expire. There’s even talk of an in-person meeting at the White House in early 2019. Stay tuned, as negotiations seem to be picking up steam.

Regards,

Ethan Warrick
Editor
Wealth Authority

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