President Trump and China President Xi Jinping were one belly-bump shy of a bromance during last month’s trade talks. But now, U.S. and China are back at each other’s throats.
U.S. hits first
The Trump administration voted against recognizing China as a “market economy” in the WTO—a status that would allow China to export goods around the world at cheaper prices than competing countries.
What allows China to sell at cheaper prices? For one, government-backed subsidies that enable Chinese companies to trim expenses from their operations.
But China’s up in arms about the U.S.’ opposition. That’s because after joining the WTO in 2001, it was guaranteed market economy status 15 years later.
So naturally, Xi kicked back
As the world’s steelmakers gathered Thursday to discuss a global oversupply, China crossed its arms and refused to slow down production (or at least, to be the only one slowing down production).
And that’s an issue, considering the country controls~50% of the world’s supply.
via .ORGWorld News
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"The U.S. officially places tariffs on $34 billion worth of Chinese goods. China retaliates."
Let's not kid ourselves...tariffs are a big deal. But you should keep in mind that they're nothing new. Here are five other tariffs from U.S. history that you'll want to use in any casual trade war conversations you have at the bar.
The Tariff Act of 1789
Before he was tap dancing on Broadway, Alexander Hamilton argued that a young America needed to institute tariffs. His thought process?
Taxes on imported goods would be a vital revenue source for the federal government. Tariffs would encourage the development of American industry by protecting them against foreign goods. So on Hamilton's urging, George Washington signed the country's first-ever tariff legislation in 1789...though it was very tame. Most imports received a 5% tax.
1828: The "Tariff of Abominations"
Remember how the South and North used to despise each other? Well, this tariff is one reason why.
It placed a tax on imported goods (specifically targeted at cheap British products) in order to help the manufacturing industryÂ—which was concentrated in the North.
The agricultural South, on the other hand, felt that they had to pay more for goods without reaping any of the benefits of the tariffs. South Carolina even took it upon itself toÂ declare the tariffs unconstitutional.
1930: Smoot-Hawley Tariffs
Picture a lone tumbleweed drifting across a deserted main street in small-town America.
This was the setting of probably the most famous tariffs in U.S. history, when Senator Reed Smoot and Representative Willis C. Hawley tried toÂ boost the domestic economyÂ in response to the stock market crash of 1929.
Unfortunately, the import taxes (of up to 50%) backfired.Â According toÂ UGA professor Stephen Mihm, the legislation "was a disaster for both the American economy and the global system of trade."
2002: Bush's steel tariffs
President Bush set out to help the domestic steel industry by putting up to 30% tariffs on steel imports (Mexico, Canada, and others were exempt).
But after they were reversed in late 2003, the tariffs didn't appear to move the economic needle. Jobs were lost, or gained, depending onÂ who you ask. One analysis found that GDP took a (very minor) hit.
2009: Obama's tire tariffs
Responding to a flood of Chinese tires entering the market, President Obama slapped a 35% tariff on...well, Chinese tire imports.
Did they work?
The Peterson Institute found that the tariffs saved a maximum of 1,200 jobs, but came at a high cost to U.S. consumers. In fact, the best part about the tariffs, they wrote in April 2012, was that "they expire in September." Via Light Roast / Morning Brew
Here’s a reminder from your Econ 101 textbooks: institute 25% tariffs on steel imports and 10% on aluminum and you can expectÂ international backlash. Especially when the decision is based on a Cold War-era statute that can be invoked when foreign imports pose a risk to national security.Â
Because threat or no, that type of declaration is bound to put the U.S.Â’ relationships with other countries on shaky ground.
And it didÂ…
Some context:Â The U.S. is the worldÂ’s largest steel importer (26.9 million metric tons in 2017).Â
HereÂ’s what some of our suppliers had to say:Â
Canada:Â Â“It willÂ takeÂ responsive measures to defend its trade interests and workers.Â”Â
BrazilÂ expressedÂ Â“enormous concernÂ” and might take Â“multilateral or bilateralÂ” protective measures.Â
European Union:Â Â“We willÂ reactÂ swiftly, firmly and proportionally.Â”
ItÂ’s the classic Settlers of Catan conundrum: If you screw over Bethany when you trade for ore, you better believe sheÂ’s gonna lowball when you trade back for sheep.
But the administration is standing strong
President Trump (tweeting in response):Â Â“When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win.Â”Â
His thought process? (1) The U.S. has been bleeding blue collar steel jobs, and these tariffs will bring them back. (2) ChinaÂ’s monopoly on steel production has led to unfair competition in the market.Â
But manyÂ fearÂ these tariffs could raise costs in other industries that rely on imported steel (i.e. car manufacturing). Not to mention, China is only the U.S.Â’ 11th biggest source of imported steel.
What it means for you:Â If a trade war breaks out, look out for higher consumer prices and a depressed stock market.
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