The US-China trade war is coming to a head. While at one point it looked as though China might concede ground to the US and lower tariffs and other barriers to foreign companies, the situation has now escalated to the point that both nations are imposing new tariffs on hundreds of billions of dollars worth of goods.
Back in April, many of those following the issue were breathing a sigh of relief. At the start of the month, both countries revealed plans to impose new tariffs on $50 billion of goods from each other, with Trump escalating with the possibility of a further $100 billion US tariffs on China. However, in a business conference on April 10, President Xi Jinping gave some cause for hope that a US-China trade war would be averted.
Xi pledged to open China to a greater amount of foreign competition, promising to reduce tariffs on cars and trucks entering the country and protect ownership rights of foreign companies, among other measures. Many saw this as a sign that Trump’s tariff tactics had been effective, and China would concede ground in order to maintain its relationship with the US. However, as China had made similar promises in the past, it remained to be seen what action the country would take.
And indeed, in the weeks following, trade relations between the two countries have not improved as some hoped they would. On June 15, Trump officially announced a 25% tariff on $50 billion worth of goods from China, to take effect July 6. In response, China promised to do the same, targeting farm products and industrial goods. Trump then promised to target another $200 billion in Chinese goods. In addition, China has now announced plans to lower tariffs on thousands of goods from other Asian countries.
US-China trade war hits other Asian countries
While the US and China will obviously feel the effects of these new tariffs, they aren’t the only ones. Despite China promising lower tariffs to several countries in Asia, others will not fare so well. Countries such as Taiwan, South Korea, and Malaysia all sell goods to China that are used to make products that are sold to the US. Less business between China and the US means lower sales of products such as computer chips and automobile components.
Taiwan is a key producer of computer chips used in mobile devices and other consumer electronics, and stands to suffer significant losses. South Korea is in a similar boat, with key manufacturers already seeing a fall in stock prices. Malaysia and Singapore are also at risk, as both countries provide consumer electronics components to China. China itself stands to lose manufacturing business, with many companies beginning to consider relocating to other Asian countries in order to avoid the impact of US tariffs.
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Companies operating in this region are already concerned about the impact these tariffs will have. Taiwanese tech firm Foxconn, which supplies parts to Apple, sees this issue as its biggest challenge. And shares in South Korean companies Samsung Electronics and SK Hynix have fallen recently in anticipation of the new tariffs.
US farmers are feeling the pressure from new tariffs
Many US producers are under threat as well. China has imposed tariffs on US soybeans and other major crops, making it much harder for American companies to sell their crops to China. Soybeans are America’s largest agricultural crop and its largest farm export, so this move will have a significant impact on the country. The US government recently announced $12 billion in aid for farmers impacted by the tariffs.
Steel prices have also been dramatically affected by US tariffs – while the steep increase may benefit domestic steel producers, the cost is hurting manufacturers that use steel in their products. Steel prices in the US are now over 50% higher than those in China.
Things may be looking grim for a number of industries, but not everything is set in stone. There is still time for the US and China to reconsider or renegotiate. However, just the threat of these actions has been enough to raise prices and lower profits, threatening the wellbeing of many producers and manufacturers. And as China looks for more ways to retaliate against the US, it may begin to target services as well, meaning that the tourism and education industries may also feel the effects.
As the United States continues to negotiate trade agreements and impose new tariffs, many sectors and economies are in flux. Keep following Technavio’s experts for more insights into what vendors and industries around the world can expect from these developments in the US-China trade war.