Displaying items by tag: imports

(Beijing)

Markets are taking bad news out of China hard. New data out of Beijing shows that the country’s exports dropped sharply in December. The figures suggest a global slowdown, and a brutal trade war with the US are taking their toll on the Chinese economy. Exports fell a whopping 4.4%. China also held a $323 bn trade surplus with the US, the largest since 2006. Imports fell 7.6%, showing how much the slowdown in China was affecting demand. Car sales in in the country also declined for the first time since 1990.

FINSUM: The tariffs are working, but there is a larger issue at stake—the US and the world’s relationship to China. There is a lot of strain being put on the country, and we are concerned about how the government there will react.

(Washington)

On the surface, the US seems to have a major upper hand in its trade war with China. Simply put, they export a lot more to the US than we do to China, which means that they have more to lose than we. However, looking closer at the imposition of the US’ attest tariffs, a significant weak spot emerges. That weak spot is that the US has become overly reliant on some very niche but important Chinese exports. Mot of these are things people have never heard of, like carbonate esters and fluorine salts, both used for electric car batteries. Nonetheless though, they are very important, and 297 such imports were recently exempted from the US tariffs.

FINSUM: Barite (for oil and gas exploration) and Ibuprofen, are other crucial imports. This is one of the pressure points where China could simply cutoff supply and the US would be in a difficult position.

(Washington)

In a cruel twist of fate, guess who the biggest losers are when a country imposes tariffs on imports? Its own exporters. The reason why seems to be two-fold. Firstly, the tariffs on imports take cash away from foreign countries to buy exports. Secondly, such tariffs often lead to retaliations, which then shrink the size of exports (e.g. what is happening to Harley Davidson right now). The link has been well understood by economists for almost a century, but new research shows it concretely in trade flows. Overall, the trade balance does tend to improve, but exporters suffer significantly.

FINSUM: The problem is that trade wars are almost a zero sum game. That said, the US has a better bargaining position than usual in this one.