Trump is following through on a long-time threat that he says will punish China for intellectual property infringement and create more American jobs. [Effective this Friday,] the Trump administration…[will be] imposing tariffs on up to $60bn of Chinese goods, or roughly 13% of goods imported from China…and 2.75% of total US goods imported according to Danske Bank.
The original article has been edited here for length (…) and clarity ([ ]) by munKNEE.com – A Site For Sore Eyes & Inquisitive Minds – to provide a fast & easy read.
The tariffs will target tech products, telecoms & clothing. The package could be applied to more than 100 products, which Trump argues were developed by using trade secrets the Chinese stole from U.S. companies or forced them to hand over in exchange for market access.
In addition, the Administration has discussed rescinding licenses for Chinese businesses and employing other such methods to restrict Chinese investment in the United States. The President’s recent decision to block a Singaporean company’s bid to takeover a U.S. company underscores his aversion to Chinese direct investment (the company had Chinese affiliations).
The Administration has also reportedly discussed visa restrictions and a mandate that U.S. stock exchanges limit who can list in a U.S. market. It remains unclear whether the restrictions will go this far, but the President has, to date, been hawkish in his trade policy and there seem to be fewer and fewer moderating voices in the White House.
In terms of specifics, the U.S. trade deficit last year hit an all time high of $375BN.
A snapshot of the key aspect of the U.S.-China trade relationship:
- the U.S. exports soybeans, pharmaceuticals, vehicles and aircraft.
- the U.S. imports textiles, clothing, manufactures of metals, electronics and toys.
The Chinese will likely respond in kind
The Chinese will likely respond in kind, beginning a succession of tit-for-tat trade policies between the two countries.
The United States has the option to take a multilateral approach and work with allied nations to initiate their own WTO dispute regarding Chinese technology transfer policies, however, at this point, the U.S. appears more likely to instead take unilateral retaliatory action without WTO authorization, which may run afoul of the U.S.’s WTO obligations. If the U.S. acts unilaterally (as it appears it will), China will likely bring a challenge before the World Trade Organization (WTO).
The President’s actions may not receive the congressional backlash that his steel and aluminum tariffs did. Many U.S. corporations are frustrated with China’s policy requiring foreign companies to turn over source code and other proprietary technology in exchange for access to the Chinese market.
However, if the President takes this as far as he currently seems to be planning to, punitive measures by China coupled with the chilling of foreign investment could be a major concern for U.S. corporations.
How to trade it?
…Below, courtesy of Strategas, is a list of U.S. companies which derive the largest percentage of their total revenue from China.
As trade war looms, it would be prudent for investors to start thinking about potential risks to the companies they own if they have sufficient business in China.
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