Global trade brings countries around the world together. For the most part, the United States relies on trading partners like China, Mexico, Canada, Japan, and Europe to keep the price of certain products in line with what American consumers what to pay for those items. The United States does $579 billion worth of trade with China, $545 billion with Canada, and $525 billion with Mexico. The U.S. trade deficit with China is $347 billion. That deficit is 70 percent of the total U.S. deficit. China products are in stores and online not because China produces the best quality products, or the country goes out of its way to deliver goods on time. The U.S. trades with China because the Chinese know how to duplicate higher-priced products at lower prices. You could say the Chinese are the best knock-off artists in the world. Americans want to those knock-offs because they can afford them.
According to The Guardian, president Trump’s recent decision to put more tariffs on Chinese products has investors shaking in their boots. And our allies around the world are shaking their heads in disbelief. The last thing the American economy needs is a trade war, according to the economists that keep track of the global economy. Economists say Trump’s plan isn’t going to hurt China as much as it will hurt the United States. They worry about the impact it will have on American consumers and investors.
The U.S. stock market reacted to Trump’s tariff plan. The Dow and the S&P 500 lost more than five percent of its value in the middle week of March 2018. It’s no joke. The stock market experienced its worst week since January 2016, according to CNBC.com. And that loss didn’t take into account what China plans to do to retaliate. The Chinese put $3 billion in tariffs in place to counter Trump’s original tariffs on steel and aluminum. But economists expect China to come out swinging once they see what Trump has up his nationalistic sleeve next. The Chinese are not afraid of a trade war because they have the upper hand when it comes to purchasing Treasuries.
Even though China is moving from a manufacturing-based economy to a consumer-based economy, the Chinese government is not afraid to replace some American products in their market with products from Europe, Brazil, and other nations. The Chinese know they can win a trade war with Trump, and they welcome the opportunity, according to some economists. But Trump believes he can win a trade war. The difference is the Chinese know they own a big piece of the American economy and they can control that piece.