"An Absolutely Epic Escalation Of The Trade War Has
Us On The Precipice Of A Cataclysmic Global Economic Crisis"
by Michael Snyder
"If Americans really understood how much their standard of living was about to change, the streets of our major cities would be packed with protesters by tomorrow morning. For the past several decades, China and other low cost exporters have been flooding our shores with hundreds of billions of dollars worth of cheap goods. This is the only reason why you can go to Wal-Mart and buy a shirt for three bucks. But since we buy far more stuff from the rest of the world than they buy from us, we ultimately have to go back to those other nations and beg them to lend our money back to us so that we can pay our bills. This sick, twisted co-dependent relationship has enabled Americans to live a debt-fueled standard of living that is far beyond what we deserve, and now our rapidly escalating trade war with China is going to bring the party to a crashing halt. On Tuesday, the Trump administration released a list of $200,000,000,000 worth of Chinese exports that will be hit with 10 percent tariffs. Those tariffs are in addition to the 25 percent tariffs that had previously been announced on 50 billion dollars worth of Chinese exports. These new tariffs are scheduled to go into effect on August 30th, and the Chinese have already pledged to retaliate.
In essence, our trade war with China has now “gone nuclear”, and this is going to have extremely serious implications for the U.S. economy. The following is a short excerpt from the statement that U.S. Trade Representative Robert Lighthizer released about these new tariffs: "On Friday, in response to unfair Chinese practices, the United States began imposing tariffs of 25 percent on approximately $34 billion worth of Chinese imports. These tariffs will eventually cover up to $50 billion in Chinese imports as legal processes conclude. The products targeted by the tariffs are those that benefit from China’s industrial policy and forced technology transfer practices.
China has since retaliated against the United States by imposing tariffs on $34 billion in U.S. exports to China, and threatening tariffs on another $16 billion. It did this without any international legal basis or justification.
As a result of China’s retaliation and failure to change its practices, the President has ordered USTR to begin the process of imposing tariffs of 10 percent on an additional $200 billion of Chinese imports. This is an appropriate response under the authority of Section 301 to obtain the elimination of China’s harmful industrial policies."
Without a doubt, something needed to be done about China’s unfair trade practices. The Chinese manipulate currency rates, they impose very high tariffs on U.S. goods, and they have been stealing our intellectual property for decades. But it is very unlikely that anyone is going to “win” this trade war, and in the short-term all it is going to mean is a whole lot of economic and financial pain.
According to Politico, the new tariff list that was just released hits a very broad range of products: "The new tariff list broadens the types of goods caught up in the trade war by targeting items like seafood, minerals, chemicals, and personal care items, such as shampoo and soap. It also includes a number of consumer products such as handbags, luggage, gloves and paper."
Do you buy any of those things? Well, expect to pay significantly more in the not too distant future.
When compiling this new list, the Trump administration specifically “took into account what could cause disruptions to China’s economy”. The following comes from CNBC: "Some of the products on the list facing tariffs are from Made in China 2025 sectors, the official said. Made in China 2025 is a strategic plan to make China a leader in key global industries, including technology. When compiling the list of goods, the U.S. Trade Representative took into account what could cause disruptions to China’s economy."
So what do you think that the Chinese are going to do in response? Yes, they are going to look at measures that will “cause disruptions to America’s economy”. The Chinese are a very proud people, and they aren’t stupid. They know where our pain points are, and they will not be afraid to go for the jugular.
China cannot match this round of U.S. tariffs dollar for dollar, because China only imports approximately 130 billion dollars worth of U.S. goods a year. But China could decide to cut off some or all agricultural imports from the United States, and that would be absolutely devastating to many farming states. In fact, many farming states are already feeling substantial pain from the tariffs that China has already imposed: “Agricultural states, I think, are being hit the hardest,” said Rodney Ludema, a Georgetown University professor and former senior international economist in the White House Council of Economic Advisers under President Barack Obama. The tariffs spare states “that are heavily service-dependent, like New York.”
In terms of value, some 38 percent of products on the tariff list are agricultural, including soybeans, sorghum, tobacco and meat, said Chad Bown, a senior fellow at the Peterson Institute for International Economics. That’s bad news for farm-belt states, primarily in the Midwest.
In addition, China could decide to “go nuclear” by cutting off U.S. investment in China, by restricting our access to rare earth elements, or by dumping our debt. The only reason why we have even been able to get to 21 trillion dollars in debt is because nations such as China have been buying our debt at ultra-low interest rates that are way below the real rate of inflation. If China quit buying our debt and started dumping their current holdings, interest rates would start skyrocketing and we would be in a world of hurt almost immediately.
We don’t have the kind of leverage that some people seem to think that we have. And there are many prominent experts that are warning that we are heading for catastrophic consequences. For example, just consider what David Stockman recently told CNBC: "The United States is heading to a “massive trade war” because President Donald Trump “doesn’t know what he’s doing,” said former Reagan budget director David Stockman. “We have an absurd policy - dangerous, stupid. The worst that I’ve seen since my whole career started in 1970 under [President Richard] Nixon, and he did some crazy things,” Stockman said Tuesday on CNBC’s “Closing Bell.”
The financial markets have reacted very strongly to these latest developments. As soon as the new tariffs were announced, Asian stocks began to drop and Dow futures plummeted about 300 points from the closing highs.
Unfortunately, most ordinary Americans simply do not grasp the importance of what is happening, because we have never seen anything like this in modern American history. The two largest economies on the entire planet are now in a state of economic conflict, and there is no way that this is going to end well."