China to raise reciprocal tariffs on U.S. goods to 84%
cnbc.com
cnbc.com
Double gut punch for Americans. Hold onto your hats, it’s about to get capital letters BAD.
China is extremely reliant on manufacturing exports. Their options such as finding new markets for these products is limited, because other countries want to maintain their industries too.
For example:
“BRUSSELS — The European Union on Tuesday reached out to Beijing for help in tracking a wave of Chinese imports that is expected to pour toward the EU after U.S. Donald Trump ramped up tariffs on China.
Should the diplomatic initiative with China fail, the EU would probably have to introduce “safeguard measures,” which are special duties intended block to sudden diverted trade flows.” [1]
It’s kind of a judo move - using China’s excess manufacturing capacity against itself. The US can find other countries to manufacture goods over time and also manufacture them here. Prices will go up but it’s not the end of the world. Apple is going to serve 50% of the US market with Indian made iPhones, for example, where they face lower tariffs.
[1] https://www.politico.eu/article/eu-pencils-in-china-summit-f...
[2] I should note I’m not necessarily for or against these tariff actions, but the ongoing rhetoric around them has been kind of annoying and one-sidedly anti-American.
https://www.ig.com/en/news-and-trade-ideas/US-China-trade-wa...
The other problem is that you're not considering the full scope of impact at the nation state level.
It might be "3% of China's GDP", but when you look at dollar figures the US is buying almost $500 billion of Chinese goods, while China is buying around $150 billion. If the US stops importing Chinese goods (as an example), that's $500 billion worth of trade that's good for China that is destroyed, whereas if China cuts off the United States, the US is only losing $150 billion.
If you want to minimize the situation by suggesting it's no big deal for China to stop exporting to the United States because it's only 3% of China's GDP, you'd have to make the same argument that it's even less of a big deal for the United States to lose its $150 billion in exports to China.
Of course the situation isn't that simple, and you know that.
Flip side is US MNCs pulls about ~300B in revenue in PRC that's not counted in trade balance accounting (because western products made in PRC factories sold to PRC consumers isn't cross borders transaction unless profit timely repatrioted, which is rarely) - most of the KFCs and Nikes and Apples can be replaced with domestic.
Whereas there aren't much PRC MNCs in US, and what few there are getting lawfared/stomped out of US, i.e. TikTok divestment and de minimis going to kill Shein/Temu.
Dependin on how / where things escalate, lots of US MNCs may lose their 10-40% revenue from PRC. There's also next rung of stupid, i.e. TikTok US getting nationalized, CFIUS forcing PRC divestments in agri, media, blah blah. Or US seize PRC assets, fucking with SWIFT, in which case trillions of US capex in PRC and not repatriated MNC profits goes up in smoke. Then we're stepping stones away from Tesla / Apple getting nationalized. Then who knows.
Neither company can be "nationalized" because they're American companies. Apple contracts with Chinese suppliers to build their products. Chinese companies already owns the factories. Tesla has their own factories( or factory?) in China but if China "nationalizes" it, that just amounts to Chinese workers in the Chinese Tesla factory losing their jobs and of course Tesla no longer selling their cars in the Chinese market.
> most of the KFCs and Nikes and Apples can be replaced with domestic.
Why would they replace with domestic companies? Isn't that unfair for trade? Wouldn't European or Latin American companies enter the market with their products now or be better able to freely compete in the Chinese market? Or is there something missing here?
> US has ~300B trade deficit with PRC.
What's this number based on? I see a lot of figures floating out there, but similarly to your comment about the flip-side of US companies operating in China like Kentucky Fried Chicken not being accounted for here, you're not accounting for Chinese suppliers and manufacturers set up in other countries to bypass tariffs. Unfortunately it seems everyone (not throwing shade your way here) has their own number to fit their narrative and it's hard to get the full impact.
> TikTok US getting nationalized
Preferably it should be banned (the fewer social media companies and apps that exist the better), but it would be better if it was forced to be sold to a US company, which is a far more likely scenario then nationalization.
In response to shenanigans like TikTok US branch being nationalized, or CFIUS mass reversing PRC MNC portfolios, i.e. shares/purchases of US assets. They can be functionally "nationalized" in retaliation as in just have whatever is in country siezed, as in their presence in PRC. It means WFOE like Tesla losing their factory, whose workers will make domestic cars. Apple losing some R&D centres, all the capex infra build for foxconn can be messed with. Continue hampering capex/engineer export to India or whereever Apple wants to setup their none PRC operation to make process as painful as possible... or simply just kill Apple hardware 90% dead like US tried with Huawei/ZTE.
> replace with domestic companies
Because it's been ~30 years, foreign MNCs who wanted to be in PRC are in PRC. In the short term domestic companies better positioned to soak up domestic demand, which has been independant trend in past few years.
> this number based on
Some PRC finance portal reposted #s from Hurun Research report on US enterpises in PRC last year. There was IIRC Macquarie report a few years ago that tallied 3T in revenue in past 15-20 years or something that comports. Like US is fully of Chinese goods, and PRC is full of US brands, and in both cases US captures most of the value, or at least PRC captures very relatively little merely being margin producer.
> it's hard to get the full impact
Yeah, I'm just pointing out as you did, the situation isn't simple, not because PRC may have 300B more to lose, but potential of US loss maybe closer, not farther accounting diversion, mnc profits... services, ip/patent/licensing fees. I'm highlighting trade diversion/circumvension is not likely going to be on the scale of 100s of billions of US MNC revenue. Hence relative loss likely not as lopsided.
> likely
Full sale was never likely. Some sort of 51%+ US JV (which afaik US investors already owns majority) maybe. But tarrifs obviously blew everything up. So now it's wierd scenario where Trump seems loath to ban, as in very much want US to own so nationalization of US operations doesn't seem unfathomable.
Trump was very popular on TikTok which is why he's in favor of keeping it or making it a US company so he can sell it to one of his sycophants. But it will be fully sold to a US company or banned. I don't think a JV is on the table.
> In response to shenanigans like TikTok US branch being nationalized, or CFIUS mass reversing PRC MNC portfolios, i.e. shares/purchases of US assets. They can be functionally "nationalized" in retaliation as in just have whatever is in country siezed, as in their presence in PRC. It means WFOE like Tesla losing their factory, whose workers will make domestic cars. Apple losing some R&D centres, all the capex infra build for foxconn can be messed with. Continue hampering capex/engineer export to India or whereever Apple wants to setup their none PRC operation to make process as painful as possible... or simply just kill Apple hardware 90% dead like US tried with Huawei/ZTE.
Right but those activities harm China too. If China isn't building iPhones in China because China nationalized those specific assets then Chinese workers sort of lose too. Similarly with the Tesla factory - if they keep it running they have to spend money to retool it to make BYD cars, then they have to sell those cars to someone - perhaps domestic consumers, but there's a lot of analysis that would be needed to be done to understand the exact effects.
I mostly took issue with your statement that Apple and Tesla would be nationalized, but I think you just meant to say their assets would be nationalized in China which is certainly an option that China has on the table.
But like all things there are actions the US can take that China would be very unhappy about, like, perhaps the US decides to build a military base in Taiwan. Now what? I'm not suggesting that's a good idea or on the table, but just saying both countries can get creative.
> Because it's been ~30 years, foreign MNCs who wanted to be in PRC are in PRC. In the short term domestic companies better positioned to soak up domestic demand, which has been independant trend in past few years.
Sure but now with US ventures like KFC probably being forced to shut down there should be room for European companies or companies from other countries to move in to China, which China will be just fine with right? I'm imagining since tariffs will be higher for Mercedes in the US they'll have to ship those cars to other countries and who better than China?
> both countries can get creative.
I did preface "next rung of stupid", as in stupid / creative rungs of trade war escalation ladder. We're already at 100%+ tariffs, I think it's fair to conclude we're entering unseen/stupid/creative territory, hence highlighting increasingly wild options, because at some point the just adding to tariff %s become farcical and need to move onto other intruments. I think we're in the... almost anything short of kinectic war can happen realm.
> China will be just fine with right
Yes, I think China would actually be fine with substituting imports from EU for US if only to more balance trade with EU and further peel them from US. Under more predictable (slow) transition this would/could happen. But TBH I don't think PRC/EU relations good enough even with Trump/EU breakup. I think we're in very accelerationist trade war scenario and most likely patriotic buying (which is already growing trend in last few years) is going to do a lot of the capturing. Chinese domestic brand influence are growing, Chinese increasingly fine with consuming higher value Chinese brands.
But if the amount of products China sells to the US aren't a big deal/don't amount to much, or whatever, Americans won't see much in the way of large price increases either.
The more likely scenario is Americans are going to see higher prices, but China is going to be very much feeling the effects of these tariffs.
We've already seen this manifest in the creation and subsidization of companies like Temu which are making the cheapest products possible without regard to environmental factors or product quality (i.e. your t-shirt disintegrates after you wash it once) to keep the manufacturing lights on and keep Chinese people employed.
I don't think Americans will see large price increases, as in nothing most households can't absorb / pile on their credit... but US is debt society, so many will drown. The pain is not the same as PRC dipping more into savings if they deal with price increase.
So no, IMO the most likely scenario is many americans are going to feel the tariffs, some will drown, some PRC producers that depend on US and american producers (that depends on PRC inputs) are going to drown. But your average Chinese will tighten belt like then did in 2024, because vibe sucks, not because they're losing purchasing power or going bankrupt, since PRC has high savings society.
> seen this manifest
Again, wipe 3% off PRC GDP (i.e. near total cessation of US trade) and they're back to 9 months ago. They'll broadly feel what they feel then. Some will feel it worse, because they're specifically exposed to US trade. But most will not. The average American will feel the trade war more than the average Chinese, because the average Chinese will continue to get cheap Chinese goods. The psychology is going to hit different on society level and influence accordingly.
On one hand sure China can sell products to the rest of the world.
In the extreme case where trade was cut off completely between the US and China who will buy the over $500 billion in goods China previously sold to the United States?
Brazil? They have tariffs on electronic products. The EU? I just linked an article where the EU is already asking China to stop shipments that would have been bound for the US or face tariffs on those goods. South East Asia? Japan? Korea? Neither of those countries are going to allow Chinese companies to outcompete their manufacturing sectors. I'm just not sure who exactly has the appetite or money for these goods.
On the other hand, why exactly is the US not just able to buy desired goods from other markets? They may be more expensive due to the tariffs in some or many cases, but it's not like the US can't buy iPhones made in India or instead of buying t-shirts made by Chinese subsidiaries in Vietnam you buy them actually made in the United States. Germany has to sell Mercedes Benz. What happens when the EU says "no thanks" to their automobile manufacturers being beat by Chinese ones in the European market?
The main argument I've seen made online is basically "prices go up", and I think that can cause a political change, but economically I don't find it to be that compelling. I also find it generally disingenuous that there's a spirit of the US is the sole bad guy here. Donald Trump (who I didn't vote for) is an a-hole, but that doesn't mean other countries weren't engaging in unfair or protectionist trade policies either, nor does it mean they will stop or won't protect their manufacturing bases from Chinese competition.
Everyone will be hurt, of course, which is one of the reasons why the US starting this trade war is insanity.
> that doesn't mean other countries weren't engaging in unfair or protectionist trade policies either
True, although Trump massively overstates how much of this is actually happening. However, there are numerous ways to address this that don't involve self-harm. We're just choosing not to do them.
Also, the US engages in these practices as much as everyone else. There's more than a whiff of the pot calling the kettle black here.
I don't know that this is factually true. I suspect it is. I also want to make it very clear that I'm not defending Donald Trump nor am I suggesting that the way he's going about things is the only or even an optimal way.
With those disclaimers aside:
> Nobody else is engaging in the punitive tariff rates the US is imposing, so the rest of the world is economically more attractive than the US on the score. I don't see how China will be more hurt by this than the US.
When you say nobody else is engaging in punitive tariff rates, well we just got started I think last week right? We're only seeing effects in the stock market today (and of course suppliers and importers are in nightmare mode as well). I've already linked an article discussing the EU telling China to turn shipments around or face tariffs. There's 0 chance that this doesn't continue to cause reactions.
I'm also not sure what the rest of the world being "more attractive on that score" means. Sure, prices may rise for American citizens on imported products, but if you postulate that Americans are the ones who "pay the tariff" as so many say then what's exactly the problem for exporters? Of course when we look at reality they will have to reduce their own costs to make their products more competitive to the US market to account for tariffs, or sell fewer products. But in this scenario the United States is still are far more attractive market to sell to than many other countries.
First being pro-Russian and making demands to Ukraine and now those tariffs.
Trump keeps on giving.
1. He's literally just a moron and is fixated on tariffs. Many think that's most likely but something tells me it's not the whole story.
2. They see a war with China coming in the next few years and they need to decouple as quickly as possible and make sure the US is not reliant on China or Chinese manufactured products, while also potentially harming Chinese trade. Something to ask here is, if we thought we were going to war with China over Taiwan in the next few years what actions would we take now to better positions ourselves for that coming war? Making our allies angry doesn't seem to be helping, but were EU members really going to send troops to the Pacific to defend Taiwan anyway? Certainly not when they have Russia at their doorstep.
As you said, China just shifted their manufacturing to southeast asia and many of them are still backed by Chinese money. Also the made in US thing didn’t really happen either.
I'm not saying I agree with this, just trying to think through what they may be thinking for fun internet discussions. Personally I love our allies and I think they make us way stronger and we should work together with them to address concerns.
I wonder if the end goal of wanting onshore manufacturing is to be able to defend or attack using cheap modern electronics.
https://www.technologyreview.com/2024/06/26/1094249/china-co...
These tariffs are a wonderfully regressive tax that will hurt the poor and middle class. The beneficiaries are his constituencies, the rich and privileged.
This whole tariff narrative is based on upside down thinking where obtaining material goods somehow constitutes a liability. Are we really that far detached from reality that these memes have legs? I guess so!
Yearning to go back to some idyllic past when there was more scarcity is not going to save us, rather it's just going to destroy our own country. The only way forward is positive government action to mitigate the corrosive economic effects of abundance, especially the fast-forwarded abundance from having the world reserve currency.
The government has been dropping the ball on doing anything to meaningfully address this for the past several decades - instead being beholden to the disingenuous calls for "fiscal responsibility" of "fiscal conservatism", which have resulted in anything but responsible or conservative behavior. Rather the same new money has all still been created - it has just been handed to banks to create asset bubbles rather than being used purposefully to mitigate the economic damage.
Why not tax services (banking, insurance, etc)?
Why not tax IP (pay a tax of ¥30 for every viewing of a US film)
Why not tax foreign business? McDonald's China has to pay an extra 10% tax on revenue compared to a non-US company.
Since Trump started calling his made up numbers reciprocal it muddies the waters.