The high tariffs on Chinese imports proposed by Donald Trump might slice 1.3% percentage points off China’s GDP growth, according to a new estimate, and hurt U.S. Consumers if they target low-end goods instead of other industries.
“Trade will come up very early in Trump presidency,” Francis Cheng, head of China strategy at the Hong Kong brokerage and investment bank CLSA, said today.
He predicts Trump will go after specific sectors in China instead of implementing an across-the-board tariff (Trump has said the tariff could rise as high as 45%). That’s because China’s top three exports to the U.S.—mobile phones, computers, and consumer goods including baby carriages, toys, and sporting supplies—are mostly products made for U.S. Companies. Think iPhones being built by Foxconn.
“The biggest loser is U.S. Companies if there’s a trade war,” Cheng said.
Instead, the Chinese industries most likely to get slapped with new tariffs are those against which the U.S. Has already filed disputes through the World Trade Organization (WTO): steel, aluminum, auto and solar glass, and automobile parts.
U.S. Presidents have wide latitude to invoke tariffs, and Trump’s pledge to use a 45% tariff against unfair Chinese trade is likely, maybe even probable, because it’s happened before. President Reagan imposed quotas and tariffs on cheap Japanese products flooding into U.S. Markets in the 1980s. In 1983, a 45% tariff was imposed on imported Japanese automobiles, and four years later, Japanese computers, TVs, and power tools were hit with a 100% tariff.
Japanese companies’ responses to the moves are likely to be repeated in China, CLSA’s Cheng says. The Japanese raised prices to combat the tariffs and then moved production abroad, much of it to other countries in Asia, to save costs.
Trump’s policies aren’t any more likely to bring lost manufacturing jobs back to the U.S. Than Reagan’s were in his day, however. For one simple reason: The U.S. Minimum wage, as Cheng points out, is eight times higher than China’s.