By Dan Steinbock
As United States President Donald Trump is again suspending the opportunity for trade compromise, new US tariffs are not only alienating US allies and partners but undermining America’s own future prospects.
Trump threatened to impose a new 10% tariff on $200 billion of Chinese goods on Monday. The move will not only re-escalate the trade war with China but contribute to new risks of collateral damage to the US economy. And make no mistake: While China is the first target; the next ones will include some of the largest trading economies in Europe, East Asia and Americas.
US tech giants will not be immune
US semiconductor chipmakers, including Intel and Qualcomm, generate $15 billion each in annual revenue in China. The companies are at a great unease as the US government considers tariffs on chips imported from China, which has a critical place in their supply chains.
Due to increasing global interdependency, US unilateral moves are undermining the profitability and future prospects of not just American and Chinese companies, but other companies that are held up by the trade war. While Qualcomm needs China’s approval for its $44 billion purchase of NXP Semiconductors, the latter is also linked with US relief for Chinese telecom giant ZTE, which Trump supports but the US Congress may oppose. This means uncertainty to the Dutch NXP’s workers, suppliers and buyers.
The leading global technology companies have an estimated $100-150 billion at stake in the US-China trade war.
For Apple and Intel, China accounts for almost a fourth of revenues ($45 billion and $15 billion, respectively). In Broadcom and Microsoft each, a tenth of revenues ($9-$10 billion in each) come from China. After Google shut down its Chinese search engine in 2010, it has dreamed about a return. In turn, Facebook’s CEO Mark Zuckerberg hopes to launch his site in the mainland. It appears that Trump’s message to both is: dream on.
Additionally, the larger Chinese share US multinational companies have, the greater headwinds they now expect. Boeing’s shares are down, as the US giant seeks for a cut in the $1.1 trillion that China will spend in the next 20 years to buy new aeroplanes. After all, Beijing could also purchase its planes from France.
How the trade wars will hurt America
The new tariffs threaten to increase barriers to Chinese markets, while alienating Chinese consumers from US products and services, thus penalizing US export potential, investment projects and low-cost advantages.
If a compromise is not reached, US businesses may lose $70 billion in energy, agriculture and manufacturing that China has offered to purchase only if the Trump administration will suspend tariffs on Chinese products. In fact, the impact on the energy sector alone is enough to cause an alarm. When Washington lifted its 40-year export ban for crude oil in 2015, China’s imports of US crude soared to 450,000 barrels a day and it is now one of the largest US markets. However, as new tariffs will result in proportionate Chinese retaliation, these profits could dissipate.
In 2017, US exports to China soared to $130 billion. In the absence of a trade compromise, the most lucrative export groups, including civilian aircraft and engines, soybeans, passenger cars and semiconductors, industrial machines, crude oil, and plastic materials, are likely to feel new pressures in the coming months.
China could also defer the huge trade and investment deals that were signed during Trump’s visit to Beijing. As the US is erecting new barriers against Chinese investments in the US, China can respond in kind, while launching restrictions on imports of US services.
The worst is still ahead
Trump’s trade wars have only begun. The White House’s ultimate objective is to target America’s largest trade-deficit partners in Asia (China, Japan, and South Korea), Americas (Canada, Mexico) and Europe (Germany, Italy).
Misled by his trade-hawk advisors, Trump has opted for tariffs that the White House hopes will “break” China’s resistance, which will then serve as a warning to US NAFTA partners and allies in Europe and East Asia. Yet, wishful dreams aren’t economic realities.
What these tariffs could (and should) achieve is a united front of world’s major economies that support the global trading regime that has ensured sustained global growth prospects since 1945. This is why China, China, along with major European and Asian economies, are likely to challenge the US in the World Trade Organisation (WTO) dispute mechanism. That’s also why these countries plan to counter every Trump blow with proportionate retaliation.
In the US, that means accelerated economic erosion, volatility in global markets and new uncertainty as clouds are darkening over the post-global crisis recovery.
Dan Steinbock is the founder of Difference Group and has served at the India, China and America Institute (USA), the Shanghai Institutes for International Studies (China) and the EU Center (Singapore).
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