U.S.-China Trade War Heats Up…

Is the United States at war with China?

Well, yes and no. It’s not a military conflict. And thankfully, such a war would not end well for anyone.

But it is a trade war. And that kind of war can negatively harm the stock market and the economy. On the other hand, if you beat that war, your economy can improve.

A sitting president does not want to enter an election year with an economy in trouble.

But President Donald Trump is not backing down in this trade war. And neither is China.

Trump Says Mexico Tariff Threat Worked

One of the reasons Trump is feeling bold these days is because of what recently happened in Mexico.

The president was threatening to slap tariffs on all Mexican exports to the U.S. But in light of a new agreement with Mexico on immigration, he has taken that threat off the table.

Some media say there is nothing new in this immigration agreement. But the fact that a high-level Mexican delegation rushed to Washington, D.C. to talk to U.S. officials about it tells us something different.

The new elements of the agreement stipulate that Mexico has to reach certain goals in curtailing illegal immigration to the U.S. And increase its manpower to do so.

Trade War With China More Complicated

Trump may be emboldened by Mexico’s quick response to his threat. However, he knows the China situation is very different. It’s much more complicated.

And let’s face it. China can flex many more impressive muscles than Mexico can.

With Mexico, it was a one-subject problem: immigration. With China, it’s about unfair trade practices. And cyber espionage. And intellectual property theft. And much more.

The trade war with China is making U.S. businesses and markets nervous. Businesses are looking at other supply chains than the ones they’ve been using.

Chinese Vow a ‘Fight to the End’

Right now, Trump is deciding whether to impose tariffs on another $300 billion of Chinese goods.

He may decide to do just that if Chinese President Xi Jinping refuses to meet with him at the G20 summit in Osaka, Japan late this month. U.S. Treasury Secretary Steven Mnuchin hints that progress in solving the trade war could occur at such a meeting.

So far, China has not committed to meet with Trump. Although Chinese Foreign Ministry spokesperson Geng Shuang says China is willing to negotiate.

Geng also said, “China does not want to fight a trade war, but we are not afraid of fighting a trade war.

“If the United States only wants to escalate trade frictions, we will resolutely respond and fight to the end.”

A Trade War Stand-off

Many U.S. companies are arguing that they need China. That they have few alternatives for producing everything from clothing, to robot vacuums and baby gates.

But so far, no resolutions have been made and there has been much sparring in this trade war. Not just saber rattling.

Last month Trump increased tariffs on $200 billion of Chinese imports to 25 percent. China then increased tariffs on $60 billion of American goods. Including soybeans.

The U.S. then came back and put Huawei Technologies Co., a Chinese telecom giant, on a blacklist. That means U.S. businesses cannot supply Huawei software and computer chips without government approval.

China then threatened to cut the U.S. off from rare minerals. These minerals are used in mobile phones and electric cars.

Trump Says Tariffs Are Working

Trump does not want a long trade war. He knows it’s bad for the economy. He wants his tariffs (and threatened tariffs) to have an immediate impact. In order to correct what he sees as China’s unfair trade practices.

And Trump believes his tariffs are already working. He says they have pressured other countries to make deals. And convinced U.S. companies to bring their factories back home.

Trump told the New York Times, “A lot of countries have changed their habits because they know they’re next,” he said.

He says that tariffs have also been a financial boon to the U.S. America’s GDP grew more than 3 percent during the first quarter of the year.

Not Everyone Agrees

Some business leaders and economists disagree with the president. They say the tariffs could create a recession by slowing global growth.

The International Monetary Fund says the U.S.-China trade war could lower the global GDP by about $455 billion in 2020.

The Federal Reserve Bank of New York estimates Trump’s tariffs would effect the average American household more than $830 annually.

The World Bank says global trade growth has slowed to its lowest level in a decade.

Looking for ‘A Path Forward’

Economics can be very complicated and is often confusing. There are usually no easy answers to multi-faceted questions.

Even if Trump and the Chinese president meet in Japan later this month, the situation is unlikely to be completely resolved.

Wilbur Ross is the U.S. Commerce Secretary. He said the meeting would not be “a place where anyone makes a definitive deal. At most it will be… some sort of agreement on a path forward. But it’s certainly not going to be a definitive agreement.”

So, my question is this. Do you believe President Trump should stand firm in his quest to get China to change some of its ways?

Or should Trump accept the status quo if China plays hardball?

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