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Tariffs & China

July 16, 2021

What does the economic slowdown in China mean for the US and global economy? Catch our newest TrendsTalk episode with ITR President and Speaker Alan Beaulieu to learn more.

 

 

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Transcript by Rev


Hi everyone. I'm Alan Beaulieu ITR Economics. I think most of you know me, and I'm glad to be able to talk to you today. We have a lot going on in the world, as always, and there's a lot for us to consider as we lead our businesses, as always.

One of the questions that has come up recently that intrigued me was about China. And we've been following China and I'm going to be writing a blog about China and the slow down going on there and what the government's trying to do about it and what that slowdown in China means to the US and global economy, if it's the harbinger of ill, or is it just something to be expected because the rate of growth is unsustainable, B. But we'll talk about the why and wherefore and what it means in that blog. But today I want to talk to you about something else I want to talk about starting off with tariffs.

Now that was the question that came to me, where are we going with tariffs? And we've been so busy with everything else, you and I, we may have forgotten about those tariffs. Well, the reality is tariffs is still in place. 66% of China's exports to the United States are still subject to US tariffs of about 19%, 19.3% to be specific, and that's been in place. Now, China also has their tariffs on US goods, and those tariffs have remained in place, those are about 20.7%. And those tariffs have remained in place while China has lowered tariffs for the rest of the world. So the trade tension between the United States and China is still well in place. And the President is in no hurry to reduce them for a number of reasons, not the least of which is climate change. CO2 emissions in China continue to climb, although they talk about dealing with it. While CO2 emissions in the United States coming down. And it's also a fact where making things United States you get the benefit of saying, and we pollute less. So, I mean, there's no advantage to the President being in a hurry to reduce those tariffs.

At the same time, it becomes a new norm, we've adjusted to those, businesses have and incurred some reshoring and encouraged some foreign direct investment in the United States. On a price basis the fact that it's more expensive coming in from China than it used to isn't nearly as important to a lot of people because we want the goods no matter what the costs. Freight costs have soared, the cost of the material themselves has gone up because of the tariffs and yet we're willing to pay it, or a lot of folks were willing to pay it, because we can raise prices now. And the raising of prices is on a lot of people's minds.

The amount of goods coming from China is rising. There was a normal first quarter decline and it's been rising since then. We'll expect to see more as we go forward. Imports from the rest of the world are at a record high into this country. The amount of goods pouring into this country has never been greater, is another way of saying that. So with goods coming in, prices going up, the demand being so strong, there's no reason to expect that we won't continue to see goods flowing in from China, despite the significant verbiage going back and forth between presidents. President Xi, in his speech that he gave in late June, and I'm going to quote it and this was quoted from the New York Times article. President Xi is saying, "The Chinese people will never allow foreign forces to bully, oppress or enslave us. Whoever nurses delusions of doing that will crack their heads and spill blood on the great wall of steel built on the flesh and blood of 1.4 billion Chinese people." There's nothing soft about that. There's nothing warm and fuzzy about that. And I believe that's in direct response to the statements that the United States has made about genocide, about pollution and about world trade and about how we will set the agenda for the next decade, not China.

And as this heats up, you can expect that those tariffs will remain in place. You can expect that China will be looking to do more business with the rest of the world, it has implications for how China may want to denominate more transactions in RMB instead of US dollars. I mean, it's all kinds of things that go along with that. But for the point of this TrendsTalk, it means that they still need us, goods will continue to flow into the United States from China. We still need them, we need those goods to flow into the United States. And we're dealing with the costs, in large part by some smaller margins and lately raising prices. We are not in for a full fledge inflationary environment through the near term, more on that at another time. But we are going to see that the prices coming in from China or sticking on the high side and we're going to need to get used to it.

I hope you have a great day. Thank you for listening. Take care. This is Alan Beaulieu for ITR TrendsTalk.

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Since 1948, we have provided business leaders with economic information, insight, analysis, and strategy. ITR Economics is the oldest privately held, continuously operating economic research and consulting firm in the US. With a knowledge base that spans six decades, we have an uncommon understanding of long-term economic trends as well as best practices ahead of changing market conditions. Our reputation is built on accurate, independent, and objective analysis.