US-China Trade Talks | theSkimm

US-China Trade Talks

Published on: May 9, 2019fb-roundtwitter-roundemail-round

Officials from the US and China are getting together to try to reach a trade agreement that would end the tit-for-tat trade war.

The US and China flags
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The Story

Two of the world's biggest economies are at war. A trade war that is. And they’re trying to talk things out.

The Background

President Trump has been calling for people to pay attention to China and its trade practices since long before he entered the White House. Now that he's there, he's taking up the issue.

What's the beef?

According to the Trump admin, it's that China has been very unfair with its trading practices – specifically accusing China of unfairly getting access to US intellectual property.

What's he done about it?

Tariffs. On tariffs. Quick reminder: tariffs are taxes charged on foreign imports. So here’s an example: Imagine a country puts a 20% tariff on an imported dishwasher. If the price set by the exporter is $600, there would be an additional tariff of $120, making the total import price $720. And tariffs are paid to the government by companies buying the imports​​​​​​​. And many importers of Chinese goods are US companies.

K but I imagine it's a lot more than a dishwasher?

A lot more. It officially started in March last year with the Trump admin hitting pretty much every country with tariffs of 25% on steel imports and 10% on aluminum imports – which Trump said would protect US workers from foreign competition. Then, China retaliated with tariffs on about $3 billion worth of US goods. Since then, neither side blinked. Until late last year, Trump and Chinese President Xi Jinping said 'why can’t we be friends.' That meant putting new tariffs on hold while the two countries tried to negotiate a new deal.

The Big Issue

Here are three of the main reasons the US is using tariffs to pressure China:

The first is...the competition between the US and China’s economies. The US has been an economic superpower for the past few decades thanks to its military and political presence around the world. But China has been creeping up the past few years thanks to things like Xi’s Belt and Road Initiative – which is China’s big plan to build new trade routes around the globe. And China's economic success could be linked to the country's theft of US intellectual property. You might have heard of a little Chinese company called Huawei – the world's second-largest smartphone maker – which has been accused of stealing trade secrets. So the US is using tariffs to try to get China to change its practices.

The second is...the competition between the US and China’s politics. A fight over leading the world’s economy is a fight to lead the world stage of diplomacy as well. And the US and China are on two very different sides of the spectrum. It’s democratic nation v communist nation – and the US has been a key player in containing the spread of communism around the world. So the idea of China becoming more powerful doesn’t sit well with the US.

The third is...how the two sides are going after each other. This is a game of strategy. The US has placed tariffs on Chinese goods ranging from electronics to food to clothing – arguing it’s in response to China’s theft of intellectual property. Meanwhile, China has placed tariffs on the US’s agricultural products which has impacted farmers in states where voters support Trump. Meaning it could pressure the president to back off.

The Debate

Most people can agree that China is a threat. The question is, was a trade war the right way to deal with that threat.

Team This Could Pay Off says the trade issue was a thing before Trump became president and that his tactics could be redeemed if they force China to change its predatory trade practices.

Team This Wasn’t The Answer says there are other policy changes that can happen that would have a more direct effect for those affected by trade.

The Impact

The US economy…The situation is costing the country billions in lost exports. Like we said before, US farmers have been hit especially hard – as tariffs have targeted things like meats and soybeans. Consumers and businesses have felt the strain of Trump’s tariffs on Chinese goods. That’s because tariffs are usually paid by the companies making a purchase. Your wallet is going to take a hit and might have already. Because many companies eventually pass on higher costs of goods to customers.

China's economy...It’s also costing the country billions in lost exports. Consumers and businesses in China feel the strain as well. China’s central bank has been trying to boost the economy by doing things like cutting the amount of cash some of banks must hold in reserve to encourage lending to small businesses. And drivers might feel the trade war if China decides to target crude oil which could make gas more expensive.

The world economy...Trade growth is a way to measure the success of the world’s economy. And it has slowed because of the trade war. Stock markets have been on a roller coaster and the threat that the trade war will continue to drag on made them stumble. If somehow it happened, a trade agreement could increase consumer and investor confidence in the market.

theSkimm

This trade war is a test of global dominance by two of the world’s biggest economies. And while it’s taken months for both sides to get even remotely close to settling the issue, it still feels like the feud is long from over. Now, people are watching to see whether it will benefit American companies and consumers in the long term. 

The Next Steps

The two sides have been talking it out for months. Talks were scheduled to resume Thursday and are expected to go into Friday. So, the US and China have less than 24 hours to hammer out at deal. Or else Trump threatened to raise tariffs Friday if no deal is reached. China said it’s prepared to retaliate if needed. Hold on tight to find out which way things go.


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