I see that Donald Trump is today proposing to raise the tariff on $200 billion of Chinese imports from 10% to 25%. The unilateral raising of tariffs against China is contrary to the World Trade Organization rules that require non discrimination when implementing tariffs, that is tariff imposed should be the same against all WTO members. The only exceptions to "Most Favoured Nation" status are for customs unions or Free Trade Areas that cover "substantially all trade" or for arrangements that pre-dated a country's entry into the WTO. As such, by singling out China for punitive tariffs Donald Trump is attacking the rules based system of the WTO and its multilateral system for dealing with international trade. The other problems with Trump's policy is that all it does is invite retaliation from the Chinese who will undoubtedly hit US goods with their own tariffs.
The Trump policy is also contrary to basic economics because countries gain from lowering or eliminating tariffs not increasing them. Tariffs on imports raise the cost of living for consumers leaving them with less money to buy other goods, for firms they raise the cost of imported inputs and so reduce their profitability and ability to invest costing jobs. Also since many US firms have investments in China through joint ventures with Chinese companies, Trump is actually hitting US overseas investments by limiting their ability to export to the U.S. The other thing Trump will learn is that the US is a debtor nation and much of that debt is held by the Chinese government in the form of its holding of US Treasuries as part of the Chinese foreign exchange reserves. Failure of the Chinese to turn up at US Treasury bonds, or selling of US debt that the Chinese own would put upward pressure on the US bond yields. Generally it does not pay to upset your creditors. So my message to Trump is simple, stop this stupid policy it will end up damaging the USA far more than it will any other country including China. A nice BBC video on the risk of a trade war below:
The Trump policy is also contrary to basic economics because countries gain from lowering or eliminating tariffs not increasing them. Tariffs on imports raise the cost of living for consumers leaving them with less money to buy other goods, for firms they raise the cost of imported inputs and so reduce their profitability and ability to invest costing jobs. Also since many US firms have investments in China through joint ventures with Chinese companies, Trump is actually hitting US overseas investments by limiting their ability to export to the U.S. The other thing Trump will learn is that the US is a debtor nation and much of that debt is held by the Chinese government in the form of its holding of US Treasuries as part of the Chinese foreign exchange reserves. Failure of the Chinese to turn up at US Treasury bonds, or selling of US debt that the Chinese own would put upward pressure on the US bond yields. Generally it does not pay to upset your creditors. So my message to Trump is simple, stop this stupid policy it will end up damaging the USA far more than it will any other country including China. A nice BBC video on the risk of a trade war below:
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