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.

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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”.