Dizzying escalation of US-China tariffs threatens global economy | DW News

Key Concepts:

• Trade War: Escalating tariffs between the US and China.
• Tariffs: Taxes imposed on imported goods.
• Retaliation: Countermeasures taken by a country in response to another's actions.
• Decoupling: Separating or disconnecting economic ties between two countries.
• American Talist Policy: China's policy of government support and subsidies for domestic industries.
• Rare Earth Minerals: A set of seventeen metallic elements that are essential in many electronic and industrial products.
• Reciprocal Tariffs: Tariffs imposed by a country that are equal to those imposed on it by another country.
• Reserve Currency: A foreign currency held by governments and central banks as part of their foreign exchange reserves.

1. Escalation of the US-China Trade War

• Beijing increased tariffs on US imports from 84% to 125% in response to the US raising taxes on Chinese goods to 145%.
• Beijing stated it would ignore further increases from Washington.
• The shifting levies have created significant challenges for businesses.

2. Impact on Businesses and Consumers

• US customers of Chinese goods, like Jang Ja's party poppers, are not placing Christmas orders due to the trade war.
• One exporter noted that the US accounts for around 10% of their exports, questioning the viability of business with uncertain profits.
• Exporters in Yiwu, the world's largest small commodities market, are worried about the increasing difficulty of doing business.
• The tariffs are expected to hurt American consumers, farmers, and exporters.
• Consumers are rushing to buy basic necessities due to concerns about rising prices.

3. China's Response and Perspective

• President Xi Jinping publicly addressed the tariffs, stating that there are no winners in a tariff war.
• China views itself as an economic superpower and doesn't want to be bullied by the US.
• China's economy was already struggling before the trade war, with a significant portion based on property and related services.
• China is mired in debt at the state-owned company and local government levels.
• Xi Jinping is under pressure but doesn't want to appear weak, especially against America.

4. Economic Analysis and Potential Outcomes

• Fraser Howe, an economist, suggests that trade has effectively stopped due to the high tariffs.
• He describes Trump's policies as aiming for a hard decoupling of trade with China.
• He notes that Americans don't want to produce low-value goods like plastic Christmas trees.
• Howe suggests Trump should focus on security-related concerns like high-tech manufacturing and rare earth minerals.
• He believes that at some point, both sides will have to stand down, but the future remains unclear.

5. Market Reactions and Global Implications

• Steven Beersley from DW Business notes that markets reacted negatively to the US tariffs.
• The Chinese government views Trump's actions as a perversion of global trade rules.
• The German government has urged both sides to find a negotiated resolution.
• The trade war hurts consumers, businesses, and farmers, and ultimately harms the global economy.
• Stock markets are experiencing broad-based movements due to concerns about the global economy.

6. Currency Exchange Rates

• The dollar exchange rate is at a three-year low against the euro.
• A weaker dollar means US consumers pay more for imported goods, while other countries can buy dollar-denominated goods more cheaply.
• Falling confidence in the US dollar could have ramifications for the US and the global economy.

7. Europe's Potential Role

• Europe may be seen as a more stable and safe haven for long-term debt purchases.
• However, there is not a whole lot of common Eurozone debt available.
• The Eurozone is controlled by 27 different economies, making it less agile.

8. Notable Quotes

• Exporter: "What's the point of doing business if we cannot guarantee our little profit?"
• President Xi Jinping: "There are no winners in a tariff war."
• Fraser Howe: "Trump is going for a hard decoupling of trade with China with these policies."
• Steven Beersley: "We are in the middle of a trade war."

9. Technical Terms and Concepts

• Tariffs: Taxes on imported goods, used to protect domestic industries or as a tool in trade negotiations.
• Decoupling: The process of reducing economic interdependence between two countries, often through trade restrictions and investment barriers.
• American Talist Policy: A term used to describe China's economic policies that involve government intervention and support for domestic industries.
• Rare Earth Minerals: A group of 17 elements crucial for various high-tech applications, including electronics, renewable energy, and defense.
• Reserve Currency: A currency held in large quantities by governments and institutions as part of their foreign exchange reserves, often used in international trade and finance.

10. Synthesis/Conclusion

The US-China trade war has escalated with increased tariffs, impacting businesses, consumers, and the global economy. China views the US actions as bullying and is retaliating, while the US aims to address trade imbalances and potentially decouple from China in certain sectors. The situation is volatile, with uncertain outcomes and potential long-term consequences for both countries and the world. The trade war is creating economic uncertainty and market instability, with potential shifts in currency values and global economic power.