Trump has just approved 25% import taxes on 1,100 Chinese products ranging from dishwashers to aircraft tyres.
The first set will come into effect on the 6th of July and will affect $34 billion worth of yearly imports from China covering 818 products.
The second set worth $16 billion is kept as a bargaining chip and will be imposed if China retaliates, making it a total of $50 billion of yearly trade between two of the world’s biggest economies.
“The US can no longer tolerate losing our technology and intellectual property through unfair economic practices,” America’s president said after adding that the import taxes were “essential to preventing further unfair transfers of American technology and intellectual property to China.”
Trump is accusing China of forcing intellectual property transfers from US companies to Chinese companies through protectionist requirements that US firms share ownership with local Chinese companies in order to have access to the Chinese market.
“The trade war was started many years ago by them and the United States lost,” Trump said on Fox and Friends. While China’s commerce department stated:
“We will immediately introduce tariff measures of the same scale and strength. All the results from the previously reached by the two parties will be invalid.”
Stocks are largely down today across the board, with US markets just about opening mostly down.
Investors may be nervous the import taxes might affect profits, but some companies might benefit by stronger intellectual property rights protections if China does move in that direction.
Whether they will, however, and just how this megaphone diplomacy will develop, remains to be seen as the world’s biggest economies enter a complex and sensitive period of trade negotiations.
Some are already calling it trade war, but Trump has already suggested zero reciprocal tariffs, allowing for real free trade between economies.
A suggestion that may have made many, who do not follow the intricate details, find it somewhat surprising that tariffs are not already zero.
Yet in many ways it isn’t as simple because as shown in the latest tariffs, Trump appears to be looking at the substance of barriers to trade, rather than just form.
That may extend to VAT impositions or subsidies in EU countries which Trump sees as tariffs in stealth. Yet, on the other hand, that verges on the internal policies of other countries, but regressive VAT taxes do not really have much public support.
Cryptos are slightly up, but have not really reacted much to this very recent announcement, with most still digesting yesterday’s news from the SEC.
Whether they will be affected by this macro-economic development and how they might be affected remains to be seen, with it potentially depending on how other assets will respond and whether there is a flight to safety.