On Friday morning, China’s Finance Ministry announced new tariffs on approximately $75 billion worth of US imports. Their statement indicated the new tariffs of 5-10% will go into effect on September 1st. Additionally, on December 15th, the country will impose new tariffs of 25% on US imported automobiles and 5% on automobile parts.
The Ministry also announced plans to resume tariffs on US imports of automobiles and automobile parts. The tariffs would be 25% for vehicles or 5% on parts, and would take effect on December 15th.
President Trump responded in the late morning with a series of tweets. His main thrust was that, “Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA.”
“We don’t need China and, frankly, would be far better off without them,” he added.
The President’s message immediately sent US financial markets into a swoon with the Dow finishing the day down 620 points. Investors don’t like uncertainty and Trump’s request that American companies essentially stop doing business in or with China promises to bring lots of it to the earnings forecasts of many large multinationals.
After US markets had closed for the day, Trump announced that he would also be increasing existing US tariff’s on Chinese goods imported into the country. In a new tweet, he wrote, “The $250 billion of goods and products from China currently being taxed at 25% will be taxed at 30%. The remaining $300 billion of goods and products that was to be taxed at 10% will now be taxed at 15%.”
The effects of these new tariffs and the increases on existing tariffs will ripple throughout the US economy and people are concerned.
So, the question becomes, is it worth it for Trump to risk a short-term hit to the economy to eliminate or reduce the inequities and unreasonable (possibly unlawful) practices of the Chinese? Should Trump continue to ratchet up the trade war or fold his tent?
None of us like to see sharp declines in the stock market or slowing economic growth. But there are times when economic pain is the price that must be paid for greater economic gains in the longer term.
Sen. Lindsey Graham (R-SC) strongly believes in this theory. Here’s what he had to say to Fox News’ Martha MacCallum on Friday night.
The goal is to get China to stop cheating the United States out of market share, to play by the rules that everybody else in the world plays by…When it comes to a trade war, we’ve got more bullets than they do, so I think the president is determined to get China to change their behavior and I’m 100 percent with him.
MacCallum pointed to the volatility of the financial markets and asked Graham what he would say to reassure nervous Americans. Graham replied:
Don’t trust Wall Street to take care of China. If there were a trade deal tomorrow to take care of China, even if it would be a terrible deal, the stock market would go up a thousand points. Ten years from now, we’d reap the consequences of that terrible deal.
The stock market doesn’t impress me at all when it comes to China. What impresses me is the President’s determination to get them to change their behavior. They sell us a lot more than we buy from them. We could put tariffs on a lot more products coming out of China than they can put on our products going into China.
Will we feel this as consumers? Yes.
Mr. President, keep it up. You’re the only guy in my lifetime who has ever taken on China and you’ve got a good hand. Play it out.
MacCallum then asked Graham if we can ever really trust China. He answered:
Well, it’s not a matter of trust. It’s a matter of verifying. Let’s say we go up to 30% on a certain group of goods coming out of China, well how do we take the tariffs off? When they change their behavior, you’ve got to have metrics, you’ve got to have transparency, you’ve got to have benchmarks. We’re not going to relieve tariffs hoping they will do better. We’re going to tie their behavior to what we do. So, there are plenty of ways [U.S. Trade Representative Robert] Lighthizer and [U.S. Treasury Secretary Steven] Mnuchin can construct a verifiable system that if we take tariffs off, their behavior has changed.
Getting them into the WTO [World Trade Organization] as a developed nation is a whole new set of rules compared to what they live under today.
I think we can do this and here’s what I would tell the American people. If Donald Trump doesn’t do it, who else will? And if we don’t do it, we’re gonna lose the world to China.
Watch the video.