(Tom Pennington/Getty Images)
During a rally in North Carolina on Monday night, President Trump boldly declared that the ongoing trade war with China was having a severe impact on the communist nation’s economy – affecting everything from supply chains to companies relocating and lost jobs.
“I want China to do well and I hope they do well, but they’ve had now the worst year in 57 years – I wonder why,” Trump said Monday night. “Unless we’re going to make a good deal or a fair deal for our country, let’s face it, we cannot go back to a situation where [the U.S.] giving hundreds of billions of dollars to China becomes standard fare. Not going to happen.”
Trump added that tariffs are “a beautiful thing” when implemented properly, and claimed that China is “eating the cost” of the tariffs rather than the U.S. consumer.
Is the President being truthful when he states that China is paying the cost of increased levies on Chinese goods? Sort of.
There’s no doubt that China is hurting, and it’s more than simply lost sales and a stalling economy.
Companies are legitimately fleeing China in droves, including HP, Dell, Microsoft, Amazon and other American electronics giants who are shifting production to other markets. Even Apple is reportedly looking for greener, tariff-free pastures.
The Chinese economy is far more dependent on exports than the United States, and the Trump administration’s hardline stance on tariffs is reflected by the recent decline in China’s GDP.
Further, some Chinese manufacturers are lowering prices to help their American clients pay for their orders now that the cost of doing business with them has gone up.
Meanwhile, Forbes noted in a recent article that the impacts of tariffs will be offset by a weaker Chinese yuan. According to Forbes, “If China’s currency was to become 25{fdbcabf771828492f9ea8159017cf64899a634f8417cacba890e13c34db45301} cheaper to zero out tariffs, the yuan would need to depreciate to 8.”
The aforementioned challenges for the Chinese economy support the President’s claim that China is indeed absorbing the cost of the tariffs, but unless the trade war is resolved in the near-term, investors and consumers in the U.S. will get hit with their own dose of economic reality soon enough.
U.S. companies that rely on China for manufacturing and sales will pay a price on the NYSE as the increased cost of doing business diminishes corporate profits. And the longer Trump’s trade war drags on, the greater the odds are that we will experience a weakening of U.S. consumer confidence and an inevitable reduction in spending by U.S. firms and households. That’s a dangerous scenario for a consumer-driven economy like the U.S.
Further, manufacturers and exporters in China can’t absorb the totality of each increase in the cost of Trump’s tariffs if the trade war continues to escalate. The U.S. consumer will eventually be forced to pay a higher price for a number of common goods that are imported from China. It takes time to relocate plants and shift production to other foreign markets, and if manufacturing does return to U.S. soil, many of the economic realities, labor challenges, environmental regulations, and government red tape that prompted manufacturers to flee to foreign markets 20-30 years ago are still in place today.
In the end, the truth about Trump’s tariffs, like everything in politics, is subjective.
WIBC host Tony Katz discussed this issue on his radio show Tuesday morning. Click the link below to check it out!
