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U.S. China Trade War And How It Affects Us

May 13th, 2019

 

The U.S. China Trade War & How it Will Affect Americans

If you have been watching the news in recent weeks, then you should at least be aware of the escalating trade war we are currently involved in with China. Well, for those who are not aware, our two countries do quite a bit of business together. This being said, it isn’t hard to see how this trade war might affect Americans in our day to day purchases. But the real question is how exactly, and when exactly will this trade war catch up to our wallets. Well first we have to understand exactly what it is going on in the trade dispute as we speak, then we can begin to have a better grasp on how it will trickle down to us as individuals.

An article by William Watts, Deputy Markets Editor of Market Watch, was just recently updated to reflect revisions done on the dollar amount of drag on the economy, by Oxford Economics (a research firm). This article helps us to understand some insight to the repercussions of this trade war, not just in America and China, but in the global economy as well. Recently, the U.S. increased tariffs on $200 billion worth of Chinese goods to a staggering 25% from the previous taxes of 10%. President Trump, in attempts to heighten the pressure on the Chinese government, threatened to extend the tariffs to other goods from the country. Of course, in retaliation Beijing is threatening to do the same on $60 billion worth of U.S. goods. That is, to raise their tariffs on American goods up to 25% as well.

This back and forward price war is a dangerous game, especially in the eyes of Gregory Daco, Chief Economist at Oxford Economics. He states, No one wins in trade wars, not even the bystanders.” When two of the worlds biggest economies get into a dispute such as this, the global economy as a whole gets involved as well. Daco estimate that if China and America continue to raise tariff after tariff, the U.S. GDP would fall by 0.3% in 2020 while China’s output would fall by 0.8%. This means a $62 billion loss of output in our economy by 2020 and a 0.3% loss (or $360 billion) in the worldwide economy. Draco and his firm also calculated that if this war escalates further, the losses could be devastating. If the tariffs continue to increase back and forward, the results would be a 2.1% loss to the U.S. GDP in 2020 which would push us into a recession later this year.

Lets just say it doesn’t get any worse than this. Will this trade war affect most Americans? When? And how? Jeffrey Bartash, a reporter for Market Watch, has given us some insight as to how that might happen. Last year when China retaliated after Trumps imposed tariffs, American farmers got the raw end of the deal. U.S. crop exports to China sank by more than two thirds. Agricultural exports fell to $5.9 billion in 2018 from $15.9 billion in 2017 when China put a halt on American soy and corn. In the same sense, many Americans will feel the effects of these new tariffs soon enough. A large part of this is the amount of major U.S. companies who outsource parts from, and export products to China. These companies include but are not limited to: Apple; Intel; Harley-Davidson; General Motors; and Caterpillar, all American giants, all of which have already seen slower sales and higher costs due to the dispute.

As far as our everyday consumer goods, one does not need to explain how many of our simple products are made in China. These are the places where the average American household is going to feel it the worst. A great way to sum it ups is in the words of Thom Dammrich, President of the National Marine Manufacturers Association, “Regardless of any perceived negotiating leverage they may provide, tariffs are taxes paid by American families, workers, and businesses, plain and simple – China does not foot the bill.” When we take a step back and realize what a trade war with China really means it is easy to understand that the American people (meaning you and I) will be paying for it soon enough, in one way or another.

However, Bartash doesn’t even think that consumer goods will be the largest impact. He states that it will be the heightened uncertainty amongst businesses and investors that the standoff creates, which will be the heaviest weight on our economies back. Both the Dow Jones Industrial Average (-2.49%) and the S&P 500 (-2.47) have sank in the past week. In times like this, it is more than a good idea to check your finances and how they relate to the market, domestically and globally to ensure that you as well as your money, are prepared for anything that might go right, or wrong. Remember, Plan Smarter, Live Better.