For nearly a year, tensions between the U.S. and China regarding trade have had a negative impact on the stock market. Many investors are now concerned that a full blown trade war is inevitable.
One of the primary reasons for President Trump’s willingness to impose stiff tariffs on Chinese imports is to hopefully narrow the trade gap between the two nations.
Simply put, America’s trade deficit with China is the difference between how much in goods and services we import with China compared to how much they import from us. According to the U.S. Census Bureau this deficit grew 17% in 2018 to hit $323.32 billion. This White House argues that the fact that we buy so much more than we sell to China kills U.S. jobs and costs our economy billions.
However, is that the case? While it is true we have a growing trade deficit with China, many economists argue it is not harmful to the U.S. economy and actually helps us by reducing the cost of many products and services and by strengthening the dollar as a global currency.
As someone who supports free trade, I have difficulty arguing against this point of view considering that since 2016 our trade deficit has risen by nearly 25% while at the same time U.S. employment levels and employee wages have both increased.
Personally, while I would prefer to buy American made products, I’m also cost conscious and like to get things at as low of a price as possible. That is why current plans to increase tariffs on foreign goods concerns me. In the end, it is not exporters that pay these additional taxes, it is the American consumer.
This point hit home with me over the past couple of weeks when one of my favorite merchants, Dollar Tree, announced they would soon be renamed “Dollar Tree Plus.” With this name change will come a change in the pricing model of their goods. In part due to increased costs for Chinese goods their stores will no longer guarantee everything in their stores will only cost a buck. Other discount retailers such as Walmart, Macy’s and Dollar General have also warned that consumers should expect increasing prices as merchants attempt to adapt to rising costs for imported goods.
As an unapologetic capitalist, I do oppose these tariffs. However, I also acknowledge that our president is right for calling out China. For a long time China has been guilty of many unfair and predatory business practices, including stealing intellectual property and trade secrets to give an unfair advantage to Chinese corporations. They also severely limit foreign investment in their country, and are a totalitarian regime that cares little about the damage they do to their people or the environment if it means gaining an economic advantage.
In my opinion, we should play a role in forcing China to reduce these abuses and change the way in which China interacts in the global economy. I simply don’t think tariffs are the best method for doing this.
Ultimately it is not the Chinese government that is harmed by these economic sanctions, it is both the Chinese and U.S. populations.
(Past performance is no guarantee of future results. Advice is general in nature and not intended for specific situations)
– Luke Davis is the director of operations and compliance at Stewardship Capital in Independence.