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Posted by on Nov 5, 2019 in Business, China, Economy, International, United Nations, United States | 0 comments

American consumers heaviest hit by Trump’s China trade war, UN says

American consumers are taking the biggest hits from President Donald Trump’s trade war although Chinese exporters are also hurting, a United Nations report said today.

“Consumers in the US are bearing the heaviest brunt of the US tariffs on China, as their associated costs have largely been passed down to them and importing firms in the form of higher prices,” said a report by UNCTAD, which specializes in international trade, commodity and development issues.

Driving the point home, Pamela Coke Hamilton, UNCTAD’s trade chief warned: “The results of the study serve as a global warning. A lose-lose trade war is not only harming the main contenders, it also compromises the stability of the global economy and future growth.”

The futility of Trump’s trade war with China was also underlined by separate US federal data released today showing that the US trade deficit increased by about 5 percent over the first nine months of this year compared with the same period last year.

Contrary to Trump’s expectations, U.S. exports to China were down 15.5% during this year’s first nine months compared with the same period a year ago, while Chinese imports dropped only 13.5%.

US imports increased by nearly $18 billion while US exports fell by about $7 billion in the same period.

In this context, the very limited trade deal Trump is trying to reach with China’s Xi Jinping this month will be far from a victory for American consumers or exporters.

UNCTAD found that the US-China trade war has resulted in a sharp decline in bilateral trade, higher prices for consumers and boosted US imports from countries not directly involved in the trade war. Some of these changes are here to stay.

Hamilton was cautious saying only that “we hope a potential trade agreement between the US and China can de-escalate trade tensions.”

Chinese exporters are proving to be resilient and competitive, despite the draconian tariffs Trump has placed on nearly two thirds of imports from China. They have maintained 75% of their exports to the US and many have recently started absorbing part of the costs of the tariffs by reducing the prices of their exports. But those reductions have not yet gone far enough to benefit American consumers.

US imports from other countries have increased partly because US economic health is better than in Europe and Asia but the prices are often not below what Americans used to pay for Chinese imports.

Trump has been successful in inflicting some pain on Chinese exporters because they took a hit of $35 billion in the US. Of that, $21 billion was replaced from other countries, mainly Taiwan, Mexico, the European Union, Vietnam, South Korea and Canada.

China is hurting because it may not recover those market shares but American consumers may also end up paying higher prices over the longer run for office machinery, communication equipment, agri-food, transport equipment, electrical machinery, communication equipment and furniture.

If Trump and Xi do not bury the hatchet soon, US farm exports could suffer long term declines as China turns to alternative suppliers.

High-tech American suppliers of components for telecom equipment could also lose ground as China builds its own microchips and sophisticated software for companies like Chinese telecom giant Huawei and high speed transport networks to circumvent obstacles in obtaining supplies from the US.

At a wider level, Trump’s persistence in weaponizing trade in relations with China continues to weaken the economies of most countries, including America’s close European allies and major emerging partners like India.

The International Monetary fund thinks that US-China trade tensions will cumulatively reduce the level of global GDP by 0.8 percent by 2020.