The American consumer will be hit by a decrease in imports from China
On January 15, 2020, the United States and China entered into a multi-stage trade agreement designed to streamline the complex and controversial commercial relationship between the two countries. How successful can the deal be considered based on the results of the first two years?
Well, firstly, it should be said that the past year ended with the introduction of regular US sanctions against China. This time, restrictive measures were applied to goods made by the labor of prisoners in the Muslim province of Xinjiang, where the Beijing authorities are trying to suppress the separatist movement with various repressions. It is clear that there was no place for politically motivated sanctions in the said trade agreement.
Secondly, under the terms of the agreement, China undertook to increase purchases of American goods in 2020 and 2021 by $200 billion annually against the level of 2017. Washington clearly violated its declared commitment to the principle of free trade by insisting on the inclusion of this clause in the document. The Chinese government, which America had constantly accused of interfering in domestic economic activity in the country, now had to vigorously intervene in foreign economic activity. But that did not happen. Either because the PRC could not because of the covid, or because it did not want to sharply increase imports from the United States against the backdrop of an unsatisfactory political situation. Imports, of course, increased, but only by a tenth of what was planned. Forceful methods against China did not work this time.
Thirdly, experts agree that both participants suffered from the trade war that began in the winter of 2018, equally or not, the question is different. In the last two pre-Covid years, US tariffs on Chinese imports have risen from 3% to 19%, and Chinese tariffs on American exports have increased from 8% to 21%. By some accounts, the American economy suffered more from the reprisals than the Chinese: trade duties in relation to US GDP were higher than in 1930 after the passage of the memorable protectionist Smoot-Hawley Act, which greatly contributed to the collapse of international trade and the deepening of the Great Depression. Fortunately, the world economy at the end of the second decade of the 21st century was in a much better state than then, and tariffs did not have catastrophic consequences.
American importers were too tied to suppliers in China, it turned out to be very difficult to quickly find a replacement for them in countries not subject to sanctions, so the Americans could not demand that the Chinese lower prices in response to duties. The fact that the cost of Chinese goods in the United States did not change for a long time after the increase in tariffs indicates that importers assumed all the costs at first, and their profits fell as a result. However, this could not continue for a long time, in the end, importers were forced to raise prices for Chinese products, and the rise in the cost of imports also played a certain role in the currently observed acceleration of inflation. However, the role is small in comparison with much more important factors, such as shortages of microprocessors and disruptions in global supply chains, which led, among other things, to a fivefold increase in transportation costs.
Under the influence of tariffs, imports of Chinese products to America decreased slightly, while imports from Mexico increased by 20%, and from Vietnam doubled. If, at the same time, Chinese exporters work more efficiently than Mexicans or Vietnamese, then the American consumer will only lose from the reorientation of imports. But whether the United States as a whole will benefit from less reliance on suppliers in an unfriendly Middle Kingdom is a more complex topic.
The fact that the share prices of US companies trading with China were hit by tariff increases came as no surprise. What is surprising is that the transfer of production from China to the United States, the increase in investment in the American economy in the wake of tariff measures, contrary to expectations, did not happen. Moreover, as far as big business is concerned, investment has generally slowed down, and employment in material production has decreased by 1.4%. The downsides of rising import prices and Chinese reprisals outweighed the upsides of a protectionist policy that Trump hoped to protect American producers from outside competitors.
The 2020 treaty, however, is still more alive than dead. Recently it became known that China, after long hesitation, decided not to completely prohibit domestic companies operating in industries that Beijing considers strategically important from listing shares abroad.
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