Beijing Review – August 15, 2019

34 BEIJING REVIEW AUGUST 15, 2019 http://www.bjreview.com

BUSINESS

T

he U.S.-China trade war is like a game
of monopoly with your in-laws; it might
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are no real winners in the end. We have con-
sistently stated over the last 17 months that
“there are no winners in a trade war.”
Until recently, the concept of mutually
assured destruction (MAD) has ensured that
pragmatism, problem solving and gradual
change were the keys to solving trade dis-
putes. But we stand now at the edge of an
unprecedented challenge.
Can two superpowers, with the largest
two economies in the world, revert back to
the norm an d avoid economic MAD?
The White House’s recent proposal to
place additional 10-percent tariffs on $300
billion of Chinese-made goods (beginning
September 1) on top of the 25-percent tariffs
already in place on $200 billion of imported
goods from China will ultimately damage
the U.S. economy by shifting massive costs
onto the shoulders of U.S. companies and
consumers.
So why are the proposed tariffs still
in play? Why has the U.S. made tariffs the
blunt instrument of its trade policy with
China? Outside of obvious geopolitical
considerations, misconceptions about the
relationship between tariffs and the world
of retail perpetuate blind support for them
among some in the U.S., while clouding the
harsh consequences of a trade war, namely,
that U.S. companies and consumers are left
to foot the bill.
If the new tariffs do go into effect in
September, further damage to the U.S. and
Chinese economies is all but guaranteed.
For China, the drive to shift manufacturing
from low value-added, low-margin prod-
ucts to technology and high value-added
production is still in the early stages. The
country still depends heavily on its traditional
manufacturing and export sectors to sustain

growth and employment. Lost production

and exports mean slower growth and higher

unemployment.

In the U.S., the markets (as well as global

markets) reacted with predictable gloom on

the news of the proposed new tariffs and the

yuan hitting a 10-year low in early August.

Both the Dow Jones and NASDAQ indexes

experienced top 15 all-time one-day drops in

value.

The list of ways in which the ongoing

trade war will damage the Chinese, U.S.

and global economies in the short and

long term is lengthy. Here we will focus

on the damage the current and proposed

tariffs on imports from China will have on

the U.S.

Hands tied

With expensive tariffs looming, suppliers

who manufacture their products in China

are being told to bring their operations back

to U.S. soil. Without mentioning how wishful

and unrealistic it is to expect thousands of

manufacturers to willingly pick up shop and

relocate to the U.S. (where labor costs are ex-

ponentially higher). It simply cannot be done

with several product categories.

As an example, this is the case with

most home appliances. Manufacturing a

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factories equipped with specialized equip-

ment and fueled by a complex system of

raw materials, components and product

sourcing. Replicating this infrastructure to

shift virtually all dehumidifier production

from China to the U.S. (or any other country

for that matter) would be so expensive and

time-consuming that it is simply untenable

as a legitimate solution.

With no option to relocate, suppliers will

be (and already have been) absorbing the

cost of tariffs. And since manufacturers oper-

ate on a thin margin, sometimes as low as 6-7

percent, most of the increased cost will have

to be passed onto retailers, and ultimately,

consumers.

Limited margins

Most retailers are incentivized by market

competition to offer their lowest prices on

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When tariffs force those retailers to accom-

modate higher costs within already slim

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disruption in the form of massive layoffs,

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store management positions, further dam-

aging the U.S. middle class. That’s why over

No Real Winners

Trump’s additional 10 percent tariffs on Chinese goods will hurt everybody

By Michael Zakkour & John L. Ghiorso

With the potential for a sudden and prolonged

strain on the U.S. economy, the new proposed

tariffs on China should be seen as nothing

more than what they actually are:

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