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New Tariffs, Same Woes

September 19, 2018388 view(s)
In response to China’s “unfair trade practices,” Trump continued his trade war with China, a third wave of tariffs in the form of an additional 10 percent tax on around $200 billion in Chinese goods that will go into action next Monday, but its effects have already been felt, as stocks fell across the board yesterday at the end of the day. With no end in sight, Trump’s trade war has not only increased national economic uncertainty but also global economic concerns. When these uncertainties exist it might be a good time to look into investing in precious metals. The biggest round of trade tariffs out of Washington applies to nearly 6,000 products made in China. The new round of tariffs is expected to go into effect at 10 percent rate next week and are additionally expected to increase to 25 percent on January 1, 2019, unless a compromise or deal is agreed upon prior. Hours after Trump’s new tariffs, China has already taken retaliatory measures and continue to escalate the trade war with the United States. The Chinese government has decided to impose tariffs on $60 billion worth of US goods. “The Chinese side reiterates that the aim of imposing these tariffs is to prevent trade frictions from escalating and it is a measure of last resort against American unilateralism and trade-protectionism,” the Chinese state television report said. If the US continues to raise its tariffs, China will respond in kind, the report said. “There will be great and fast economic retaliation against China if our farmers, ranchers and/or industrial workers are targeted!” Trump said. Jake Parker, vice president of the US-China Business Council in Beijing has been quoted, saying, “We disagree with the tactics the president is using,” regarding the continued escalation of the US-China Trade War. “We don’t think tariffs are the answer,” he continued, “We think the two sides need to sit down and negotiate an outcome that is beneficial to both countries and helps the Chinese implement the types of reforms that the Trump administration is looking for.” The Chinese commerce ministry said it would impose its tariffs on September 24, the same day the US will impose its new tariffs, however at rates that will be levied at 5 percent and 10 percent instead of the previously proposed rates that reached upwards to 25 percent. The BBC's Asia business correspondent Karishma Vaswani said the escalating trade war between the two countries was partly due to a lack of understanding of the other's position. "Given the diametrically opposing views Washington and Beijing have of their problems, this trade war is unlikely to get better before it gets worse - for them, or for any of us." The United States has already previously implemented $53 billion in tariffs on Chinese products earlier this year, beginning in July with an initial increase of charges on $34 billion worth of Chinese produced goods. Just last month, the US imposed a 25 percent tax on the second wave of goods worth $16 billion. This latest round of tariffs means that about half of all Chinese imports to the US are now subject to the new duties. United States companies have already expressed their concern regarding the coming effects of higher costs on their businesses and warned of the risk of job cuts. While the dollar index is still holding steady, at 94.520, economists are generally optimistic that the tariffs will have little effect on the US economy, they have also warned that the effects are quite difficult to predict. "Looking ahead, the key consideration for both dollar and gold over the coming week is pre-positioning for next week's U.S. Federal Reserve meeting," said Ilya Spivak, a currency strategist for Dailyfx. In theory, the tariffs will make Chinese made products more expensive, and in turn, encouraging consumers to buy American made while boosting local business and the national economy. But many companies, especially tech companies including Apple and Dell fear that the tariffs will increase their costs as many of their products are made in China. Apple has reached out to the President expressing their concerns that consumers will have to pay more for their products to which Trump replied in a tweet, “Make your products in the United States instead of China.” The reality is that these tariffs will most likely impact American consumers and Chinese exporters with both countries will see economic growth rates under pressure. Both countries are incredibly dependent on each other despite the ongoing trade war. "I don't see a way out in the near term," said William Zarit, President of the American Chamber of Commerce in Beijing. "I would like to see serious negotiations in which the Chinese will address market opening, reciprocal treatment, and equivalency." While Trump is adamant about his trade policies, it seems that many involved directly with Beijing are not in favor of the president’s policies. Given Trump’s tendencies, it seems that this trade war will continue to carry on with no discussions between the two parties and seemingly, no end in sight. The questions remain, how could this trade war and its constant escalation affect the American dollar and in turn affect the price of gold? It seems that the American dollar has remained relatively strong perhaps due to an increase of higher interest rates by the Federal Reserve, higher import prices, and high oil prices. The constant threat of high inflation perhaps has also driven most if not all of these policies in order to support the dollar. And while there is some solace in these policies, it does seem that there is an intricate connection between global economic uncertainty and the strength of the US dollar. While he continues to wage his trade war, he will also have to put up with a stronger US dollar that in turn almost nullifies the impact of his tariffs. Perhaps this is the proverbial straw that could potentially break the trade war’s back.
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