China is the knock-off business capital of the world. Chinese businesses know how to produce products that look great, but don’t always work great. Thanks to China’s manufacturing capacity, and the government’s deep financial pockets, middle-class Americans are able to buy Chinese products that fit into their family budgets. Thousands of businesses in the United States depend on China for decent priced TV’s bicycles, shoes, clothes, smartphones, and other tech products.
But those businesses, and the products they import from China are under attack. President Trump wants to put an additional 25 percent tax on Chinese imports, and that will be the kiss of death for businesses that need to hit certain product price points. In other words, a shoe made in China that normally retails for $40 will sell for more than $50 if Trump adds a tariff on another $200 billion Chinese imports. Putting tariffs on Chinese emports will hurt corporate profits and push up retail prices. And most economists say tariffs will fuel inflation in the United States.
The American economy is strong. In August, employers added more than 200,000 new jobs, according to the Labor Department. And that means more people will be able to buy more products. And most of those products will come from businesses that import Chinese products in order to hit certain retail price points. But if those products are more expensive, America’s consumer-driven economy will suffer. More than 80 percent of the GDP output is consumer-driven.
Mr. Trump believes he can win a trade war with China, but that war will have a lot of business casualties in the United States. Trump believes the collateral damage caused by his trade war is the price of waging such a war. But Mr. Trump is no match for the Chinese. China has several ways to retaliate, but China may be willing to suffer short-term export pain and wait until the midterm election results are in, according to a Yahoo Finance article.
According to that article, China may punish American businesses have offices in China. And China could also systematically devalue its currency so China products don’t spike at retail due to the tariffs. And the big ace China has in its retaliation hand is selling trillions of dollars in U.S. Treasuries. But that move is a double-edged sword for China. Selling treasury notes will hurt both countries.
