US Common People Are Losers in US Trade War with China


Former US President Trump believed that he won the trade war launched by him against China as Chinese exporters have to pay the excessive tariff hikes imposed by him on Chinese exports to the US. But now according the Moody’s report quoted by Hong Kong newspaper hket in its report “‘China-US wrestle’ Who wins and who loses?”, since the tariff hikes of the 20% hikes US importers paid 18.5% while Chinese importers, only 1.5%.

The importers has to include such tariff hikes in the price increases to be borne by US consumers but US government’s tariff income has greatly increased. As US government is hard up, Trump’s successor Joe Biden has to maintain the tariff hikes to increase its income. Poor American common people, US trade war against China hurts American people instead of China.

Biden perhaps believes he can exploit the trade war as an excuse for consumer tax hikes to increase his government’s income since Americans’ hostility toward will make them willing to pay high tariffs in support of US trade war against China. Therefore, he maintains Trump’s trade war and other policies against China though he opposes nearly every of Trump’s policies.

Comment by Chan Kai Yee on hket’s report, full text of which in Chinese can be viewed at https://inews.hket.com/article/2960435/%E3%80%90%E4%B8%AD%E7%BE%8E%E8%A7%92%E5%8A%9B%E3%80%91%E8%B2%BF%E6%98%93%E6%88%B0%E8%AA%B0%E8%B4%8F%E8%AA%B0%E8%BC%B8%EF%BC%9F%E3%80%80%E7%A9%86%E8%BF%AA%E5%A0%B1%E5%91%8A%EF%BC%9A%E7%BE%8E%E5%9C%8B%E4%BC%81%E6%A5%AD%E6%89%BF%E6%93%94%E5%A4%A7%E9%83%A8%E5%88%86%E6%88%90%E6%9C%AC.


WTO finds Washington broke trade rules by putting tariffs on China; ruling angers U.S.


By Emma Farge, Philip Blenkinsop

SEPTEMBER 15, 202010:33 PMUPDATED 34 MINUTES AGO

GENEVA/BRUSSELS (Reuters) – The World Trade Organization found on Tuesday that the United States breached global trading rules by imposing multibillion-dollar tariffs in President Donald Trump’s trade war with China, a ruling that drew anger from Washington.

The Trump administration says its tariffs imposed two years ago on more than $200 billion in Chinese goods were justified because China was stealing intellectual property and forcing U.S. companies to transfer technology for access to China’s markets.

But the WTO’s three-member panel said the U.S. duties broke trading rules because they applied only to China and were above maximum rates agreed to by the United States. Washington had not then adequately explained why its measures were a justified exception, the panel concluded.

This panel report confirms what the Trump administration has been saying for four years: the WTO is completely inadequate to stop China’s harmful technology practices,” U.S. Trade Representative Robert Lighthizer said in response.

China’s Commerce Ministry said Beijing supported the multilateral trading system and respected WTO rules and rulings, and hoped Washington would do the same.

The decision will have little immediate effect on the U.S. tariffs and is just the start of a legal process that could take years to play out, ultimately leading to the WTO approving retaliatory measures if it is upheld – moves that China has already taken on its own.

The United States is likely to appeal Tuesday’s ruling. That would put the case into a legal void, however, because Washington has already blocked the appointment of judges to the WTO’s appellate body, preventing it from convening the minimum number required to hear cases.

The WTO panel was aware it was stepping into hot water. It noted that it had looked only into the U.S. measures and not China’s retaliation, which Washington has not challenged at the WTO.

The panel is very much aware of the wider context in which the WTO system currently operates, which is one reflecting a range of unprecedented global trade tensions,” the 66-page report concluded.

TAKE STOCK’

The panel recommended the United States bring its measures “into conformity with its obligations”, but also encouraged the two sides to work to resolve the overall dispute.

Time is available for the parties to take stock as proceedings evolve and further consider opportunities for mutually agreed and satisfactory solutions,” it said.

During a two-year trade war with Beijing, Trump threatened tariffs on nearly all Chinese imports – more than $500 billion – before the two countries signed a “Phase 1” trade deal in January. Extra tariffs are still in place on some $370 billion worth of Chinese goods, and $62.16 billion in duties have been collected since July 2018, U.S. Customs data here show.

Trump has described the WTO as “horrible” and biased towards China, often threatening to quit.

However, during an ABC News town hall on Tuesday, Trump continued to back a trade deal signed with China in January, and suggested Beijing was now buying record amounts of U.S. corn, soybeans and beef because Chinese leaders knew he was “very, very unhappy” about their handling of the coronavirus pandemic.

As he left the White House for that event, Trump said he would “have to do something about the WTO because they’ve let China get away with murder.”

He said he needed to take a closer look at the ruling, but added: “I’m not a big fan of the WTO – that I can tell you right now. Maybe they did us a big favor.”

The decision could help fuel a Trump decision to leave the WTO or underpin U.S. arguments for reforming the 25-year-old trade body, said Margaret Cekuta, a former USTR official who helped write a crucial report on China’s intellectual property abuses that preceded Trump’s tariffs.

It gives the administration ammo to say the WTO is out of date,” said Cekuta, now a principal with the Capitol Counsel lobbying firm, adding U.S. officials could argue that the WTO’s inability to rule on intellectual property rights left it ill-prepared to deal with the global economy.

Trump, critical of multilateral institutions, has already quit the U.N. cultural organisation UNESCO and plans to leave the World Health Organization.

Reporting by Emma Farge and Philip Blenkinsop; Writing by Philip Blenkinsop; Additional reporting by David Lawder, Andrea Shalal, Doina Chiacu and Steve Holland in Washington and Meg Shen in Beijing; Editing by Peter Graff and Peter Cooney

Source: Reuters “WTO finds Washington broke trade rules by putting tariffs on China; ruling angers U.S.”

Note: This is Reuters’ report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.


In latest sign of trade-war pain, the Trump administration announces tariff relief for dozens of Chinese products


Gina Heeb

Nov. 29, 2019, 12:31 PM

Reuters

  • The US on Friday announced it would shield dozens of products from steep import tariffs it levied against China last year.

  • The move was seen as a way to mitigate domestic concerns ahead of the 2020 elections, but it came at a critical moment in trade negotiations.

  • Thousands of companies have requested relief from tariffs, warning the Trump administration that those measures could eventually force them to raise prices or slash jobs.

The US on Friday announced it would shield dozens of products from steep import tariffs it levied against China last year.

The move was the latest acknowledgment by the Trump administration that its trade policies have threatened to cause financial pain for American companies. President Donald Trump has often downplayed the domestic effects of his tit-for-tat dispute with the second-largest economy, arguing that it’s necessary to win fairer trade agreements.

Lollipops, vacuum cleaners, table lamps, bicycles, outdoor tables, canoes, cots, and more would be excluded from the tariffs implemented on $200 billion worth of Chinese products in September 2018, the Office of the US Trade Representative said. In May, Trump more than doubled the tax rate on those imports to 25%.

Thousands of companies have requested relief from those measures, warning the Trump administration that they could eventually force them to raise prices or slash jobs. But companies and watchdogs have criticized tariff decision-making as lacking transparency.

Joseph Barloon, the USTR general counsel, said that as part of the exclusion process officials determine whether the tariff would “cause severe economic harm to the requestor or other US interests” and ask whether the product is available only from China, is strategically important, or is related to industrial programs there.

The new exclusions were seen as a way to mitigate domestic concerns ahead of the 2020 elections, but they came at a critical moment in trade negotiations.

China threatened countermeasures against the US over the weekend after Trump signed into law a bill that backed pro-democracy demonstrators in Hong Kong, casting doubt on the first part of an interim trade agreement that was announced in October but has still not been put to paper.

“I’m still not sure both sides will reach a ‘phase one’ agreement, but the Chinese authorities are capable of expressing displeasure about the human-rights bills and continuing to negotiate on the trade war,” said Jared Bernstein, a senior economic adviser in the Obama administration.

Last week, both sides expressed optimism that progress could be made before tariff escalations in December.

While there have been clashes over agricultural purchases and tariffs in recent weeks, China outlined plans to bolster its rules on patents, copyrights, and trademarks in a document released Sunday.

The document proposes concrete ways in which the central government would work to tame the provincial officials who are often involved with intellectual-property violations, according to Mary Lovely, a trade scholar at the Peterson Institute for International Economics.

“Such an incentive can be effective, although we also know that the evaluation system can be gamed, as has been the case in environmental protection,” she said. “These new guidelines move in the right direction, even as we wait for more specifics to emerge about how these new policies will be carried out.”

Source: market.businessinsider.com “In latest sign of trade-war pain, the Trump administration announces tariff relief for dozens of Chinese products”

Note: This is market.businessinsider.com’s article I post here for readers’ information. It does not mean that I agree or disagree with the article’s views.


U.S., China agree ‘Phase 1’ trade deal; Trump suspends October tariff hike


Jeff Mason, David Lawder

October 11, 2019 / 4:50 PM / Updated 21 minutes ago

WASHINGTON (Reuters) – The United States and China agreed on Friday to the first phase of a deal to end a trade war, prompting President Donald Trump to suspend a threatened tariff hike, but officials said the agreement had to be put on paper and more work was required to get it finalized.

The partial accord, covering agriculture, currency and some aspects of intellectual property protections, represented the biggest step toward resolution of a 15-month tariff war between the world’s two largest economies that has hit financial markets and slowed global growth.

Related Coverage

U.S. farmers cheered by apparent trade truce, hope shipments to follow

The announcement did not include many details, however, and Trump said it could take up to five weeks to get the deal written.

We will not sign an agreement unless we get and can tell the president that this is on paper,” U.S. Treasury Secretary Steven Mnuchin said as the two sides gathered with Trump at the White House.

Advertisement

With Chinese Vice Premier Liu He sitting across a desk from him in the Oval Office, Trump told reporters that the two sides were very close to ending their trade dispute.

There was a lot of friction between the United States and China, and now it’s a lovefest. That’s a good thing,” he said.

Trump spoke after two days of high-level negotiations in Washington between Mnuchin and Trade Representative Robert Lighthizer and a delegation led by Liu on the Chinese side.

Photo WH

U.S. Trade Representative Robert Lighthizer talks to China’s Vice Premier Liu He during a meeting with U.S. President Donald Trump in the Oval Office at the White House after two days of trade negotiations in Washington, U.S., October 11, 2019. REUTERS/Yuri Gripas

Mnuchin said that Trump had agreed not to proceed with a hike in tariffs to 30% from 25% on about $250 billion in Chinese goods that was supposed to have gone into effect on Tuesday.

But Lighthizer said Trump had not made a decision about tariffs that were subject to go into effect in December.

When asked about those tariffs, Trump said: “I think that we’re going to have a deal that’s a great deal that’s beyond tariffs.”

Advertisement

Trump had previously insisted he would not be satisfied with a partial deal to resolve his two-year effort to change China’s trade, intellectual property and industrial policy practices, which he argues cost millions of U.S. jobs.

U.S. stocks ended more than 1% higher on Friday but well off the day’s highs after the announcement, with the S&P 500 .SPX up 1.09% after rising as much as 1.7% earlier on hopes of a deal.

DUTIES

Trump and Chinese President Xi Jinping are both scheduled to attend a Nov. 16 summit of the Asia Pacific Economic Cooperation countries in Santiago, Chile.

Both sides have imposed duties on hundreds of billions of dollars of goods during their dispute, but there have been positive signs in recent days.

China’s securities regulator on Friday unveiled a firm timetable for scrapping foreign ownership limits in futures, securities and mutual fund companies for the first time. Increasing foreign access to the sector is among the U.S. demands at the trade talks.

Beijing previously said it would further open up its financial sector on its own terms and at its own pace.

On Thursday, the U.S. Department of Agriculture confirmed net sales of 142,172 tonnes of U.S. pork to China in the week ended Oct. 3, the largest weekly sale to the world’s top pork market on record.

Additional reporting by Michael Martina in Beijing and Echo Wang in Washington; Writing by Sonya Hepinstall; Editing by Paul Simao and Alistair Bell

Source: Reuters “U.S., China agree ‘Phase 1’ trade deal; Trump suspends October tariff hike”

Note: This is Reuters’ report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.


Trade War Cannot Reduce US Trade Deficit but Helps China Grow Stronger


An article on The Hill yesterday titled “Trump already has won the trade war with China” says Trump has already been able to get 90% of what he wants in his trade war with China. However, he would not stop and keeps on tariff rises to hurt US and world economy.

The article lists what trump has or would have got from China if he simply accepted Chinese commitments in the trade negotiations, such as reduction of US trade deficit by Chinese purchase of lots of US energy and agricultural products, protection of intellectual property, prevention of forced transfer of technology, end of government subsidies to industries, ensure of fair treatment for US entities, etc.

What is Trump’s strategic goal?

The article says, “In the U.S., President Trump appears to be holding out for a starkly decisive outcome — equivalent to China’s unconditional surrender — to maximize his political standing for winning re-election in 2020.”

Trump’s problem is his failure to see China’s strategic goal. China would not surrender as it wants Trump to keep on US pressure to facilitate China’s further reform and opening up for transformation from export- and investment-geared growth to innovation-, creation- and consumption-led growth.

Such transformation certainly will slow down China’s economy. US trade war only quickens the transformation while worsen the slowdown. However, such slowdown is but short-term. In the long run the transformation will enable China to achieve better growth later.

To keep exports to the US, China has to move its labor intensive export-oriented enterprises to its neighbors where labor costs are lower.

China has been helping Sri Lanka train workers for employment in Sri Lanka’s vast special economic zone near Hambantota to enable China to move such enterprises to the zone. The port China is building there will facilitate the exports.

Similar zones are being established in Bangladesh and Myanmar since China signed memorandums of understanding with them on the establishment of China-Bangladesh Economic Corridor and China-Myanmar Economic Corridor last year.

China-Pakistan Economic Corridor is being built and there are also such zones for China to move such enterprises there.

The construction of infrastructures of power stations, roads, railways and ports in those countries under China’s Belt and Road initiative will facilitate such movements.

US tariff hikes will only quicken such movements to avoid the hikes. China will only have the problem of substantial unemployment due to the movements, but the unemployed will blame US tariff hikes instead Xi Jinping’s economic transformation.

On the other hand, Chinese enterprises in those countries will make greater profits due to reduction of labor costs and have greater competitive edge in US market in exporting their products to the United States. As US enterprises cannot compete with them due to much higher labor costs, the US has to keep on importing the products. Its trade deficit will increase instead of decrease. However, China is not to blame as the deficit of trade with China has been switched to that of trade with China’s neighbors.

Comment by Chan Kai Yee on The Hill’s article, full text of which can be viewed at https://thehill.com/opinion/finance/458846-trump-already-has-won-the-trade-war-with-china


U.S. trade war will only make us stronger, China’s top paper says


BEIJING (Reuters) – The trade war with the United States will only make China stronger and will never bring the country to its knees, the Communist Party’s People’s Daily wrote in a front page commentary that evoked the patriotic spirit of past wars.

The world’s two largest economies are locked in an increasingly acrimonious trade dispute that has seen them level tariffs on each other’s imports.

Tensions worsened this week after the Trump administration officially added China’s Huawei Technologies Co Ltd to a trade blacklist, immediately enacting restrictions that will make it extremely difficult for the telecom giant to do business with U.S. companies.

In a stridently nationalistic commentary, the ruling party’s official newspaper described China’s determination to protect it national interests and dignity as being as “firm as a boulder”.

“The trade war can’t bring China down. It will only harden us to grow stronger,” it said.

“What kind of storms have not been seen, what bumps have not experienced for China, with its more than 5,000 years of civilization? In the face of hurricanes, the nearly 1.4 billion Chinese people have confidence and stamina.”

China’s confidence comes from the spirit of its people’s perseverance and endless struggle, it added, citing major disasters like floods, SARS and 2008’s massive Sichuan earthquake.

“From the Opium War to the Sino-Japanese War to the War of Resistance Against Japanese Aggression and the War to Resist U.S. Aggression and Aid Korea – disaster and misery have come one after the other, tempering the Chinese people, pushing Chinese society to forge ahead in setbacks and move forward in adversity.”

Reporting by Ben Blanchard and Gao Liangping; Editing by Simon Cameron-Moore

Source: Reuters “U.S. trade war will only make us stronger, China’s top paper says”

Note: This is Reuters’ report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.


China is raising tariffs on $60 billion of US goods starting June 1


Published 3 hours ago|Updated 37 min ago

Jacob Pramuk@jacobpramuk

China will raise tariffs on $60 billion in U.S. goods in retaliation for the Trump administration’s latest decision to increase duties on $200 billion worth of Chinese products.

U.S. stock indexes fall about 2% as the trade war between the world’s two largest economies escalates.

China will raise tariffs on $60 billion in U.S. goods in retaliation for the U.S. decision to hike duties on Chinese goods, the Chinese Finance Ministry said Monday.

Beijing will increase tariffs on more than 5,000 products to as high as 25%. Duties on some other goods will increase to 20%. Those rates will rise from either 10% or 5% previously.

The move follows President Donald Trump’s decision to raise duties on $200 billion in Chinese products to 25% from 10%. The world’s two largest economies have struggled to sign a trade deal and end a widening conflict that threatens to damage the global economy.

The latest shot in the trade war rattled investors. Major U.S. stock indexes dove more than 2% Monday amid the escalation.

The duties in large part target U.S. farmers, who largely supported Trump in 2016 but suffered from previous shots in the Trump administration’s trade war with China. The thousands of products include peanuts, sugar, wheat, chicken and turkey.

Neither the White House nor the Treasury Department immediately responded to CNBC’s requests to comment on the tariff increase.

In increasing duties on Chinese goods on Friday, the White House said Beijing backed out of major parts of a developing trade agreement. While Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer met with Chinese negotiators last week in talks Mnuchin called “constructive,” the sides could not strike a deal.

Chart Impact

Trump, who wants to address grievances such as intellectual property theft, forced technology transfers and trade deficits, pushed China to make a deal ahead of its retaliation on Monday morning. In a string of tweets, the president argued the tariffs are “very bad for China.” He said “China should not retaliate” as it “will only get worse!”

“You had a great deal, almost completed, & you backed out!” he wrote of China and its President Xi Jinping.

The U.S. may not be done retaliating. Trump has threatened to put 25% tariffs on $325 billion in Chinese goods that remain untaxed. The president has signaled he is content leaving the duties in place, arguing they will damage China more than the U.S.

The president has repeatedly claimed China bears the brunt of the costs from the tariffs. But the burden falls largely on U.S. businesses and consumers.

Pressed Sunday during a Fox News interview about Americans paying the tariffs, Trump’s top economic advisor Larry Kudlow responded, “Fair enough. In fact, both sides will pay.”

Despite this, Trump claimed in a tweet Monday that “there is no reason for the U.S. Consumer to pay the Tariffs.” He also said the tariffs “can be completely avoided if you by (sic) from a non-Tariffed Country, or you buy the product inside the USA (the best idea).”

The U.S. hopes to revive discussions as it tries to reach a deal. On Sunday, Kudlow said there is a “strong possibility” Trump will meet with Xi during the G-20 summit in Japan next month.

— CNBC’s Kevin Breuninger and Tucker Higgins contributed to this report

Source: CNBC “China is raising tariffs on $60 billion of US goods starting June 1”

Note: This is CNBC’s report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.


Trump, Kudlow Not Morons but Treat US Consumers as Morons


CNBC says in its report “Kudlow acknowledges US will pay for China tariffs, contradicting Trump” yesterday that Kudlow admits that it is American consumers that will pay Trump’s tariff hikes.

Trump, however, has been trying to spread the false idea that it is China who pays the tariff hikes.

Is Trump a moron that does not have the commonsense to know the truth? Certainly not. He certainly would not tell the truth that the tariff hikes are indeed a consumption tax he imposes on US consumers. He tries to make Americans believe that China will suffer while the US will be better off due to the higher tariff income.

Is Kudrow a moron to expose his boss’s lie then? No, he is a shrewd politician. He invents the lie that China forces US enterprises to transfer technology by the legal provision that Chinese joint venture partner must have a majority share in a Sino-foreign joint venture. He certainly knows that US businessmen are not so stupid as to transfer technology to the Chinese party for nothing. In fact, the technology has been transferred to the Chinese party at a price as a capital contribution to the joint venture or with a fee for the licensing of it to the joint venture.

As an economic expert, Kudlow certain knows that. He also knows that even a wholly owned foreign enterprises in China cannot keep its technology confidential as it is impossible for the enterprise not to have Chinese employees. Therefore, transfer or licensing at a price or with a fee is a wise choice. That is the advice given by the lawyers employed by American enterprise that want to enter China’s vast market.

Kudlow is forced to tell the truth to contradict his boss as he has been challenged by a wise US journalist. However, CNBC report says, “‘Fair enough,’ Kudlow replied. ‘In fact, both sides will pay. Both sides will pay in these things.’ Kudlow added, however, that China doesn’t actually pay the tariffs, but that their GDP will suffer ‘with respect to a diminishing export market.’”

Both Trump and Kudrow are self-contradictory. Trump is happy that his government will have lots of income from the tariff hikes while Kudlow is happy that Chinese GDP will suffer. However, they know that the US will keep on importing Chinese goods in spite of the tariff hikes. That is true as most of the Chinese exports to the US are daily necessities indispensable for US consumers. In spite of the tariff hikes the goods are cheap compared with similar goods from alternative sources.

China does not pay the tariff hikes and will maintain most of its US market. What will China or its GDP suffer then? Nothing much. The only victims of the tariff hikes are US consumers who have to pay an additional consumption tax to enrich Trump’s government.

Trump is happy for the increase in tax income and tries to make US consumers believe that China pays the tariff hikes. Are US consumers morons to believe that?

Comment by Chan Kai Yee on CNBC’s report, full text of which can be viewed at https://www.cnbc.com/2019/05/12/kudlow-says-us-will-pay-for-china-tariffs-contradicting-trump.html.


U.S. Trade Representative issues notice on delay of China tariff increase


March 2, 2019

(Reuters) – The United States Trade Representative’s office (USTR) has released language to delay a scheduled hike in tariffs on $200 billion worth of Chinese goods, due to be published in the Federal Register next week.

The notice is scheduled to be published in the Federal Register next Tuesday, a USTR spokeswoman said. In it, the agency said it is “no longer appropriate” to raise the rates because of progress in negotiations since December 2018.

A tariff increase to 25 percent from 10 percent was initially scheduled for Jan. 1, but after productive conversations with President Xi Jinping, the Trump administration issued a 90-day extension of that deadline.

Citing progress in talks with Chinese negotiators, Trump on Sunday said he would again delay the increase.

“The rate of additional duty for the products covered by the September 2018 action will remain at 10 percent until further notice,” the notice said.

Reporting by Chris Prentice; editing by Grant McCool

Source: Reuters “U.S. Trade Representative issues notice on delay of China tariff increase”

Note: This is Reuters’ report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.


Dear China, Get Ready For 25% Tariffs


Kenneth Rapoza Senior Contributor Feb 17, 2019, 5:30 pm

In two weeks, China will probably be hit with 25% tariffs on $200 billion worth of goods. If not by March 1, then after any trade truce ends—supposedly 60 days later assuming an extension is still on the table.

The market is way too long on the China truce trade. The Dow jumped over 400 points to settle higher for the eighth straight week on Friday. President Trump may see the gains as a sign that any pause in tariffs is welcomed on Wall Street and, in theory, cast aside the China hawks in his cabinet led by his Trade Representative Robert Lighthizer.

But consider this: On Friday, Trump spoke about the possibility of a trade deal with China during a Rose Garden press conference. The main point of that presser was to talk about his decision to declare a national emergency at the border and fund his border wall without a congressional vote. What was more interesting to the market was Trump’s trade war talk and saying he wants to include House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer in on a China trade deal.

“Any deal I make with China, Schumer’s going to stand up and say, ‘Oh, it should have been better.’ That’s not acceptable to me,” Trump said during the press conference. “So I’m thinking about doing something very different. … I’m going to bring Schumer, or at least offer Schumer and Pelosi to come with me, and I’m going to say, ‘Join me on the deal,’” he said.

Schumer and Pelosi are Democratic Party hawks on China. Pelosi was critical of China joining the World Trade Organization in the late 1990s. China finally joined in 2001. The only thing Schumer and Trump see eye to eye on is China tariffs.

So either this is going to be a lousy deal and Trump is going to tell the market, look it’s not just me —it’s all of us. Or this is going to create the bipartisan support needed to keep tariffs locked in on China long after Trump is gone. This seems to be Lighthizer’s thinking.

Trump once again praised tariffs on Friday. He said the government was raking in billions of dollars from Chinese tariffs. Imagine doubling those tariffs from the current level of 10% to 25%? Once the government gets addicted to that revenue, what is going to stop them from removing it? Big business? No. They have petitioned the government for weeks now for exemptions, to no avail.

Wall Street? No. Wall Street will get used to it after they pick the winners and losers an in the stock market and learn where the companies hardest hit are going to get product instead of China. There will be some serious revaluation going on.

Does this look like a stock fund that’s scared of 25% tariffs? Almost overbought, the Deutsche X-trackers China A-Shares ETF seems to believe one of two things: either the 10% tariffs that were once so terrible are no longer terrible or investors are doubtful that the Trump Administration doubles tariffs on Chinese imports this year. The only way that will push higher is if tariffs are removed and/or Xi Jinping overstimulates his economy.

Worth noting for China investors, higher tariffs do not mean that China necessarily suffers great losses. It can allow the market to lower the value of the yuan to make up for that cost. And Chinese manufacturers, having grown exponentially over the last 20 years, can relocate some of their product lines to other Asian countries. This shift has been taking place even before the first shots in the trade war were fired. Chinese manufacturers have been moving apparel shops to Vietnam and Bangladesh, for instance. Some stitch-and-sew work is being moved into India.

“If you get 25% tariffs, the Chinese economy will be under more pressure, but that’s a given,” says Jin Zhang, a portfolio manager at Vontobel Asset Management. “Here in the U.S., companies like GM that have big businesses in China might be in a difficult situation and get beat up by the market. You have to know what you own and try not to own companies that are in the crossfire,” he says. “We are underweight China.”

What else can China do that is of interest to the U.S. while honestly protecting their Made in China 2025 growth strategy and keeping their core economic policies in place?

There is no great deal in the works, as Trump continually hints is in the bag. If there was great deal, he would not want to share that success with Pelosi and Schumer. Meanwhile, the market is continually told by people close to Trump, including Larry Kudlow, that the gap between both sides remains a big one. How is that closing anytime soon?

China’s offer to host Trump in Hainan, a tropical island in south China, was rejected by the White House in favor of a meeting with President Xi Jinping at Mar-a-Lago in Florida. As one investor told me in a casual conversation on Friday: Why go to Hainan only to reject China’s offer? It’s better to bring Xi to the U.S. and say, look, this is what we are going to do.

China may actually be fine with tariffs.

Here’s why.

Assuming sizable distance on key items up for debate, namely subsidies by state-owned enterprises to favorite enterprises, especially in the advanced technology space, if China wants to keep those in place they can. In exchange for keeping that status quo, China gets 25% duties.

China has already opened its market to items on Washington’s wish list, namely financial services. This will probably be expanded over time to payment service firms like Visa and Mastercard, another positive for the American services trade with China.

American financial institutions are currently racing to set up shop in mainland China to tap the investor class there and help professionalize the mainland stock market.

As the MSCI Index continues to increase the weighting of Shanghai- and Shenzhen-listed stocks in the massive MSCI Emerging Markets benchmark index, U.S. firms will need equity analysts and other fundamental research on the ground to provide market insights to both Chinese and global clients. This is a very important market for American investment firms. Getting this market to open faster than originally planned, without having to partner with a local firm, can be chalked up as a positive for Trump, even though this move was in the works prior to the trade war.

China has also changed its intellectual property laws, allowing U.S. firms to sue. While they may not get a friendly court judge to rule in their favor, the odds of Washington being happy with that given all the theft of IP in the recent past are pretty slim. Companies will have to live with Xi’s pledge to toughen IP legal protections for all firms operating in China, and that’s that. They will probably be fine with that too, seeing how it is something they never had before. It’s a move in the right direction.

We can assume that Xi is not going to make IP laws retroactive, potentially opening the floodgates to American lawsuits against the country’s best domestic companies for wrong doings prior to new laws still in the works.

Seeing how China is unlikely to change the way its state-owned firms operate to appease the U.S. and assuming they have gone as far as they will on intellectual property, the only thing the U.S. can do is keep tariffs as they are, or tell the Chinese, Look, we don’t like the role your state firms play in the market and we are not happy with your IP laws, so we are going to punish you with a 25% duty. And we might even put tariffs on more products as we see fit. The end.

China doesn’t have to do anything other than continue talks with the U.S. about market access, in hopes to alleviate the burden of some tariffs on some sectors. But in the meantime, the Communist Party doesn’t have a deadline to make Trump happy. For that, the price is 25%. Take it or leave it.

Either the tariffs stay as they are, or they go up. It doesn’t take a Harvard M.B.A. and 10 years at Goldman Sachs to figure that out. But tariffs won’t come down, especially broadly. Over time, sectors or product lines might get a reprieve as trade talks work themselves out.

“The return of ‘tariff man’ and the bizarre invitation to Schumer and Pelosi to share responsibility for the outcome of a Xi summit are suggestive of a president leaning towards 25% tariffs on March 1,” says Bryan McCarthy, chief strategist for Macrolens, a boutique investment research firm focusing on China.

The market will sell off the second investors reach the tipping point on this and see more tariffs as the likely outcome.

Source: Forbes “Dear China, Get Ready For 25% Tariffs”

Note: This is Forbes’ article I post here for readers’ information. It does not mean that I agree or disagree with the article’s views.