2/17/2021 What a U.S.

-China Trade War Could Mean for Consumers | Barron's

FEATURE

What a U.S.-China Trade War Could Mean for

Consumers
By Evie Liu May 2, 2018 10:51 am ET

Getty Images

Treasury Secretary Steven Mnuchin and other top U.S. economic advisers are heading
to Beijing this week to negotiate a potential end to the trade dispute with China.

Tensions escalated earlier last month after both countries announced tariffs on each
other’s imported goods. China has since lifted foreign-investment restrictions for auto
makers, which was taken as a sign that the world’s second-largest economy is open to
negotiation.

Ahead of Mnuchin’s trip, President Donald Trump said that he was optimistic the U.S.
had “a very good chance of making a deal” with China. But if the two countries can’t
reach agreement on issues like open markets and intellectual property, his
administration will proceed with the proposed penalties.

An all-out trade war would hurt both sides. So far, both China and the U.S. have
unveiled a tariff list of about $50 billion worth of goods, each targeting products in 19
trading categories. (The Trump administration did not disclose the details on another
proposed $100 billion in penalties.)

The amounts targeted by each country may be similar, but the impact of the tariffs
could be very different depending on which products are targeted. Presumably, each
country has designed the tariffs to inflict the most harm on the other side while
minimizing self-inflicted damages.

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Barron’s charted the 1,300 products on the U.S. list and the 106 on the Chinese list to
help suss out the strategy behind each side’s tariffs.

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At first sight, it’s pretty clear that the Trump administration has avoided cellphones and
computers, products that the U.S. buys mainly from China. China, on the other hand,
doesn’t seem to mind hitting some of its major imports from the U.S., including aircraft
and soybeans.

Although both countries have targeted about the same value of goods, the $50 billion
figure amounts to a much smaller percentage of the $504 billion worth of goods that
the U.S. imported from China in 2017. China bought just $130 billion worth of products
from the U.S. during the same period of time. That means the U.S. has more leeway to
ratchet up its tariffs to apply even more pressure on China.

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Trump said he has instructed the U.S. trade representative to consider tariffs on another
$100 billion of Chinese goods. China, on the other hand, probably has to find other
ways to retaliate, since matching the U.S. would exceed the total value of goods it
imports from the U.S.

Choosing what to penalize could depend on how reliant a country is on one trade
partner for a product. Take soybeans—the single largest commodity on China’s tariff
list. In 2017, 57% of the U.S. soybean exports went to China. Losing business in that
market could hit American soybean farmers hard.

But the U.S. isn’t the only major soybean exporter. Last year, Brazil produced about the
same amount of soybeans as the U.S., making up about one third of the world
production, and U.S. exports to China already dropped 14% in January from the same
month a year ago, as Brazil grabbed a larger slice of the world’s biggest market. This
makes soybean a perfect target for the Chinese government.

The vehicle sector was also hit hard by the new Chinese tariffs. A significant portion of
U.S. car exports—about 35% of smaller gasoline-powered cars and 46% of electric cars
—were sold in China last year. But China might not suffer as much if American cars
suddenly become more expensive, since China is already the world’s largest car
manufacturer. Consumers there can simply switch to domestic brands or imports from
other countries, such as Germany or Japan.

As for what makes to the U.S. tariff list, according to the notice sent out by the Office of
the U.S. Trade Representative last week, products that are “likely to cause disruptions
to the U.S. economy” are removed from the proposed list and those “with lowest
consumer impact” were selected in consideration of alternative country sources for
each product.

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What does that mean? About 93% of

personal computers and 80% of
cellphones the U.S. imported in 2017
were made in China, meaning there is
no easy switch to other suppliers in the
short term. If these products were
included in the tariff list, the extra cost
would be passed on to American
consumers and hurt the U.S. economy.
The same applies to most of the U.S.’s
top imported goods, such as monitors,
toys, and videogame consoles, all of
which are heavily reliant on the Chinese
imports.

Instead, the Trump administration

selected more than 1,300 different
products with relatively lower import
value and less dependency on China, in
order to minimize the impact on U.S.
consumers.

If the trade talks fall through, we don’t

know which products the U.S. will
target next, or how China will respond.
Mnuchin said he was “cautiously
optimistic” about the meeting.

If not, we’ll be updating these charts

very soon.

Email: evie.liu@barrons.com

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