A dollar for every time I’ve been asked this question over the last few months.
Why is there a trade war and how will impact us?
Everyone is having a crack at Trump for being a protectionist. And he is. But the US is still almost unmeasurably a more open economy than is China.
Here are 5 specific complaints that the US has with Chinese trade.
The result of this is that the US has a $375 billion trade deficit with China. That is not sustainable and don’t be surprised that now Trump has done the hard work, that future administrations keep this in place until there can be a deal done where the Chinese buy more American stuff.
What’s it mean for us?
The tariffs announced so far are not economically a game changer. It will be US consumers who will pay the highest price, but most won’t even notice. The yanks spend about $US13.5 trillion a year on goods and services. It imports $US200 billion of Chinese goods that will be subject to tariffs of 10%.
So assuming that Chinese exporters pass on the cost, that’s a 10% rise on about 1.5% of the shopping bill. Like I said, no one will even notice.
Should it escalate though, and US tariffs hike to 25% at the end of the year, and extend to all Chinese imports, as Trump has warned, there’s more to worry about.
China is our biggest trading partner and any shock to their economy will slow down their imports of our resources. In this scenario, KPMG modelling finds Australia’s GDP would be 0.5% lower over five years.
Our economy would certainly notice that.
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