What Industries are impacted by the Trade War with China?May 29, 2019
The automobile industry tops the list of business sectors most impacted by the trade war with China. Learn more about how companies are coping with the setbacks this trade war has presented.
For the past several months, the U.S. and China have been locked in a trading battle that continues to escalate. Recently, the U.S. hiked tariffs on Chinese goods worth $200 billion from 10% to 25%, which jeopardized a trade deal currently being negotiated between the U.S. and China. What industries are feeling the impact of this trade war? We explore below.
More about the trade war
The U.S. and China have been engaged in a trade war since January 22, 2018, concerning the mutual placement of tariffs. Tariffs, or taxes paid on an import, are charged as a percentage of the transaction price that a buyer of the goods pays a foreign seller. Tariffs are imposed on goods coming from a particular country, however, it’s not the country that pays the fee but the importer bringing in the goods. The placement of tariffs on imported goods aims to raise money for the government and protect domestic industries from foreign competition.
Tariffs boost domestic industries by making imports more pricey, hence discouraging them. Domestic producers often respond to tariffs by raising prices for their own products.
3 Industries most impacted
- Automobiles- Trade tensions between the U.S. and China have had a significant impact on the U.S. automotive industry. In 2018, in retaliation to U.S. tariffs, China increased the tariffs on U.S. made automobiles entering the country from 15% to 40%. In July, U.S. automaker, Tesla Inc. raised the price of their Model S and Model X cars by $20,000 after a new round of trade tariffs.
As a result, many businesses have suffered from reduced profits and increased cost of production. Many American automobile companies have part of their supply chains routed through China, or run a big portion of their business operations in China.
To address the problem, automobile companies are considering sourcing components for assembly from outside China. Others are considering relocating China-based manufacturing to other nations in Southeast Asia.
- Technology- Many electronics manufacturers and chip makers depend on China for sales, so they are feeling the impact of the trade war as well. Companies like NVIDIA Corp, Micron Technology and Intel Corporation and other semiconductor suppliers have a high exposure to China, so they are at risk more so than other segments of technology.
The President has proposed imposing tariffs on all Chinese imports, which will also impact Apple Inc., who have (so far) been able to escape tariffs on their China-assembled phones. According to Yahoo Finance, Apple’s stock has fallen about 12% over the past month. If the trade wars continue in the direction they’ve been headed, the stock price could become even weaker.
There have also been talks in Washington to put export controls on a wide range of emerging technologies including artificial intelligence and robotics.
- Agriculture- Total agricultural product exports from the U.S. to China totaled $9.3 billion in 2018. China is the 4th largest agricultural export market for the U.S., with cotton, soybeans, hides and skins, pork, and coarse grains being exported in high amounts. Historically, China has been the largest importer of U.S. soybeans, but in 2018 Chinese officials imposed an additional tariff on U.S. soybeans. As a result, American soybean farmers have been put in a position where they have huge stockpiles that they cannot sell.
Farmers all around the U.S. are facing financial ruin now that millions of Chinese consumers (who once purchased 60% of American agriculture exports) have stopped buying their products, due to the high tariffs. Many farmers are concerned that their businesses will not be able to survive if the trade war continues.
Some are saying the impact of the U.S./China trade war could last decades. Trade wars have historically improved nations’ trade deficits in the short run, but have also cost warring nations their economic growth in the long run. At this time it is unclear whether tariffs will continue to rise in both countries, but manufacturing, export, import and total trade are expected to be significantly impacted by the existing high tariffs. We’ll keep you posted!
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