Current Events: Trade War

Instead of doing my normal Financial Literacy Friday post, I wanted to focus on an update about the trade war which was officially kicked off today.  This will be just a bite sized overview of what happened today so that you can keep up to date with current events. Let’s start with an overview of what happened and then go into some quick specifics.

What Happened

The US decided to impose tariffs on 34 billion dollars of Chinese goods this morning, which was quickly retaliated against by the Chinese government.  Because of imposed tariffs against our allies as well as this new round of tariffs, many countries have retaliated against the US and imposed their own tariffs bringing that number up to 75 billion dollars on US goods by the end of the week.  However, China is the world’s largest manufacturing hub which means that these new tariffs affect a much larger percentage of companies as they rely on global supply chains which go through China. Basically what this means is that while President Trump was acting to protect American companies, it seems that they will be hit harder than the Chinese companies he was targeting.  

These tariffs are designed to help the domestic steel and aluminum manufacturers and they are indeed seeing the benefits of these actions, but many heavy equipment manufacturers such as John Deere and Boeing are feeling a significant pinch to their business.  It’s very likely that consumer electronics will be targeted by China, as they produce a vast majority of the technology for smart phones and tvs. While this sector was not targeted by Trump today, it seems to be only a matter of time before action is taken and consumers feel the increased prices on goods they directly purchase.

What This Means

This opening salvo of tariffs and retaliation between the US and China sets the stage for the one of the biggest trade wars in economic history.  With how intertwined our global economy has become, it seems almost impossible that the average consumer won’t feel the effects at some point in the near future.   This trade war also means that goods like cars will see reduced prices as long as they’re from foreign automakers. Many car companies have noted that the companies it helps the most are the car companies in Germany and Japan who rely on Chinese trade but can do so without the tariffs imposed by the US.  While there are always unintended consequences to these kind of large scale actions, it is likely that the US will further isolate itself due to the restrictions placed not only on China, but on our allies as well.

This was simply a quick rundown of what happened today and what some of the implications could be from the trade war, so please reach out with questions or comments below if you’re interested in digging deeper into what’s going on.