Trump Again Raises Tariffs On Chinese Goods & Services

Posted: 5/11/2019  revised: 5/12/2019

For lack of time, I cannot go into more details or topics of this trade dispute between the U.S. and China.

First of all, I am a staunch free trade supporter, but I am not blind to how free trade has been distorted in many ways over history …

My Two Cents On The Issue

Here are my two cents on this issue:

1. Free trade as it has been developed since World War II through e.g. institutions like GATT or its successor WTO, has been a far cry from real free trade. Managed or distorted trade would be a more accurate description
2. China still is a kind of Stalinist communist country (a totalitarian dictatorship)
3. Since joining the WTO, China has violated principles of free trade as has been reported many times. China does impose high tariffs on e.g. manufactured goods (e.g. cars); China has required/forced sharing of intellectual property with Chinese partner companies for access to its market and so on
4. State run and subsidized companies still dominate the Chinese economy. This is certainly not free market competition by any stretch of imagination
5. How leveraged is the Chinese economy? There are many reports about huge debt amounts in housing, banks, households etc.
6. Official Chinese statistics are very unreliable as is very typical for communist regimes
7. The Chinese regime has greatly promoted export over domestic consumption. No wonder that Chinese consumers either pay way too much for consumer goods and services or cannot find them. Just to give you one drastic example: Visit public restrooms in China. There are now a lot of them in major cities, however they are still mostly squat toilets (whole in the floor)  
8. The hope that China would transform to become a more Western type of democracy with more individual freedom and rights since it opened up at the end of 1970s has turned out to be wishful thinking
9. The current Chinese president, Xi Jinping, has installed himself as a dictator for life in 2018. Thus, destroying one of the most important safeguards of the Deng Xiaoping reforms, the term limited presidency

On The Impact Of High Tariffs

The Western media, economists, and so called libertarians are mostly preoccupied to wail about the higher costs to U.S. consumers, the detrimental effects on the the cross country supply chains, individual business that might be adversely impacted and so on.

On the other hand:

1. The ratcheting and drastic increases of tariffs is a very strong signal to China that President Trump means business and that he expects China to negotiate fast and without delaying tactics etc.
2. Higher import prices on Chinese goods & services incentivize new and existing U.S. businesses to replace those Chinese goods and services. Thereby, creating more business opportunities and jobs or robots in the U.S. etc. To my knowledge, this aspect of Trumps strategy has rarely been mentioned
3. Higher import prices on Chinese goods & services will also make other Asian and non-Asian countries more competitive relative to Chinese companies. This could e.g. very well realign international supply chains (I have to  thank U.S. Senator Lindsey Graham for this insight who in an Fox TV News interview pointed this out on 5/12/2019)