What’s Really Happening with Trump’s Tariff “War” with China
American politics increasingly resembles a bloody cage fight and even more so in the age of Trump. But rare agreement has come between the likes of Republican Senator Marco Rubio, Democrat Chuck Schumer and President Trump himself. The topic? China’s rogue behavior in international trade and what to do about it.
Writing for Real Clear Politics, Betsy McCaughey says that the two senators from opposing sides of the aisle joined in praising President Trump’s tough trade stance with China, slapping a 25 percent tariff on $50 billion in Chinese goods. When China retaliated with $50 billion in tariffs on U.S. goods, Trump didn’t hesitate to punch right back with additional tariffs on $200 billion more in Chinese products.
Imposing a “Theft Tax”
Senator Rubio, rarely complimentary toward the President who derisively labeled him “Little Marco Rubio” in the 2016 campaign, has praised the tariffs on China, calling them a “theft tax”. Senator Schumer has said that China’s theft of intellectual property and other insidious behavior has potential for “long term real damage” to the U.S.
At issue is an estimated annual theft of up to $600 billion of intellectual property in fashion designs, pharmaceutical formulas, technology and equipment designs. To put it bluntly, China is the most notorious global pirate of patented and copyrighted materials.
According to Ms. Gallagher past presidents tried to negotiate with China over this massive thievery. The Chinese were always will to talk but never act, happy to tie American trade negotiators up in talks leading nowhere.
President Trump, well steeped in hard ball negotiations as a real estate investor, decided the time for talk was over. He has acted swiftly and decisively to punish China’s outlaw behavior in the hopes of causing real change.
Thievery as official policy
The international community thought that when China was allowed to join the World Trade Organization in 2001 that association with civilized world trading partners would somehow convince China to reform its ways. Instead, Chinese roguery has worsened.
From the start, China violated WTO rules, knocking off American products and selling them as the real deal. A staggering 88 percent of counterfeit goods seized are from China and Hong Kong, according to Homeland Security. It’s like the Chinese thought “free market” meant steal what you want.
Steal it or extort it. American companies doing business in China are pressured to transfer proprietary technology to a local partner. China promised to stop that arm-twisting but broke its word.
The real impact on American companies
How badly are American companies hurt by the theft of their technologies? American Superconductor was nearly put out of business from theft of their designs. General Motors, hoped to see huge sales to China’s middle class. But with patent and copyright theft all but endorsed by the Chinese government, GM instead is bracing for the Chinese to make their own vehicles cheaper with stolen GM technology, and to sell them not only in China, but worldwide.
Tariffs for the right reasons
Tariffs are normally anathema to conservative economic philosophy, since they drive up the cost of goods sold in the U.S., punishing consumers and American workers in affected industries. But American workers are already being hurt, albeit indirectly, when Chinese theft of intellectual property nearly kills businesses from which the theft occurs. In this case, tariffs may be the President’s only weapon against the burglar breaking into the house.
Tariff talk has roiled the markets
Keep these things in mind as you see the markets break into paroxysm over the latest news on tariff spats between the U.S. and China. Certainly tariffs on U.S. goods sold into China will hurt sales and affect American labor. But the long term prospect will hopefully be that China breaks and begins to change its behavior, the result of which could be an economic boom in which business thrives in a relationship of trust, not suspicion.
Will that happen? Time will tell. In the meantime, as our market technician David McCord recently pointed out, the Chinese stock market has taken it on the chin far worse from the tariff fight than U.S. markets. The Chinese government may be the first one to blink.
Contact our office today to schedule a free initial consultation.
Be sure to sign up for our next Smart Money Investor Training Workshop.
You can listen to the latest edition of Jerry Tuma’s Smart Money Radio on our website.