As the US and China impose more tariffs, who will actually suffer?
Dangers to US Manufacturing
As China and the US continue to back-and-forth trade tariffs, it is thought that a key area to be damaged will in fact be US manufacturing – and much of this will be due to the tariffs imposed by Trump himself.
While recently, tax cuts have helped US manufacturing and increased spending on goods “made in America,” such protectionist attitudes have been slightly damaged by recent events.
Earlier this week, the US released a list of around a thousand products that US Trade Representative Robert Lightizer plans to subject to a 25% tariff. According to Bloomberg, the list is made up of “all products felt to benefit from Chinese industrial policies,” apart from “those that were ‘likely to cause disruptions to the US economy’, those that would hit consumers’ pockets the hardest, and those that couldn’t have levies for legal reasons.”
Since many of China’s exports to the US are indeed consumer goods which the government has promised not to hike up the cost of, according to Bloomberg’s David Fickling this will end up having less of an impact than intended. Fickling states: “China has a substantial advantage in this trade war in that the majority of its biggest exports to the US are consumers goods whose purchasers sent to be price-sensitive voters.
Products that will be impacted include parts used in manufacturing like flight data recorders and AC generators, says Bloomberg, and Fickling feels this will “most likely hurt the parts of the economy it purports to help”, negating half of the $26bn tax cut manufacturers benefitted from previously.
In addition, a lack of competition from China will lead to increased prices from domestic suppliers. End-product manufacturers, therefore, will end up spending more.
Tariff upon tariff
On Thursday, a further $100bn worth of tariffs were announced for China, on top of the $50bn worth already imposed on Chinese imports to the US. Trump put the fresh tariffs down to China’s “unfair retaliation” on his initial tariffs. In addition, the US is still concerned with China’s treatment of intellectual property, which has long been a contentious issue for many countries and which China has yet to resolve.
From data currently available, it looks as though the further tariffs will do more damage to the US than China, with the Straits Times reporting that some of the biggest losers so far will be US car makers, US aircraft manufacturing (in particular Boeing), US technology giants, and Chinese pig farmers.
CNBC has also reported that while China’s retaliation tariffs will hurt car manufacturing, it won’t be the US that primarily suffers in this area. Research suggests that German automakers BMW and Daimler will be hardest hit. China currently taxes all imported cars at 25% and is set to double this for vehicles imported from the US.
The impact on BMW and Daimler will be worth around $1.73bn according to research cited by CNBC, meaning the Sino-US trade war will now begin to impact the EU. Meanwhile, Ford, Fiat Chrysler and GM will be “broadly unaffected” as they build products in China itself. One US firm that is set to suffer will be Tesla, which does not yet have a Chinese manufacturing facility.
Critics speak out
Experts and investors have largely spoken out to condemn Trump’s protectionist policies in the media. National Retail Federation President and CEO Matthew Shay has urged Trump to “stop playing a game of chicken with the US economy”. He told Straits Times: “This is what a trade war looks like… we are on a dangerous downward spiral and American families will be on the losing end.”
The American Chamber of Commerce in China has also condemned the trade war. It stated over 2.5mn jobs in the US rely on trade with China.
Chairman William Zarit says: “We have to keep in mind that these are the two largest trading companies in the world, we are very intertwined, and we rely a lot on each other for economic benefit. Tariffs are a blunt instrument and there will be a lot of, what we feel is, counterproductive results actually hitting US consumers and companies.”
Bloomberg has also spoken to several investors and financial experts about the burgeoning trade war. Nader Naeimi, head of dynamic markets at AMP Capital Investors Ltd: “It’s becoming childish. At some point investors will say enough is enough, there’s just too much political volatility now.”
However, Jingyi Pan, market strategist at IG Asia Pte was less worried about the immediate impact, telling the news outlet that “one should not be surprised to find markets growing increasingly de-sensitised to such talks”.
Timeline: India takes unicorn leap with six in five days
We chart an historic week in India’s tech industry, where in just five days, between 5-9 April 2021, the country achieved six new unicorns, bringing India’s total to 10 in 2021 to date, an immense unicorn leap from just seven in 2020 and six in 2019.
April 5: Meesho
India’s first social commerce unicorn, Meesho raised US$300m from SoftBank, Facebook and Shunwei Capital, giving the Bangalore-based startup a US$2.1bn valuation, a threefold jump from its previous funding round in 2019. Founded in 2015 by two IIT-Delhi graduates, Meesho connects producers and resellers, helping small businesses sell through social media. It has 45m customers and has enabled 13m entrepreneurs to start their online businesses with no investment.
April 6: CRED
Founded just over two years ago, Bangalore-based credit card repayment app CRED raised US$215m from Falcon Edge Capital and Coatue, nearly trebling its valuation to US$2.2bn from its January US$80m round. Allowing customers to pay off their credit card debt while earning CRED coins which they cash in for rewards, CRED has grown rapidly during COVID-19, doubling its customer base to nearly 6 million in a year.
April 7: API Holdings / Groww
The first epharmacy startup to gain unicorn status, PharmEasy (API Holdings), which has digitised 60,000 brick and mortar pharmacies and 400 doctors across India, raised US$350m in a round led by Prosus Ventures. Founded by four former Flipkart employees as a way of making investing simple, investment platform Groww became India’s second-youngest fintech unicorn, raising US$83m in Series D funding led by Tiger Global, quadrupling its previous round in September.
April 8: ShareChat
New Delhi-grown social media startup ShareChat, founded in 2016 by Mohalla Tech raised US$502m from Lightspeed Ventures, Tiger Global, Twitter and Snap taking its raised total over six rounds to US$766m and pushing its valuation to US$2.1bn. The funding will be used to grow its user base and short video platform Moj, which launched in 2020 following TikTok’s ban in India. The regional language startup claims 280m users.
April 9: Gupshup
AI-led conversational message startup joined the unicorn club after raising US$100m from Tiger Global giving it a ten-fold valuation of US$1.4bn. The smart messaging platform, which has seen accelerated growth during the pandemic, was founded in Bangalore in 2005 by serial entrepreneur Beerud Sheth, whose online freelancing platform Elance is now listed. Gupshup’s API enables 100,000+ businesses to build messaging and conversation experiences across 30+ communication channels.