More tariffs may not have the effect that Trump presumes

CGTN Published: 2018-09-12 21:27:27
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Note: Dr. Zhou Mi is a senior research fellow at the Chinese Academy of International Trade and Economic Cooperation. The article reflects the author's opinion, and not necessarily the views of China Plus.

As US President Trump said he would impose more tariffs at any time on 200 billion US dollars' worth of Chinese goods, there are wider concerns about how these actions will affect the world, not only China and the US. Although it is still uncertain when, or how long, these measures could take effect, markets have already reacted to the worst scenario. 

The U.S. President Donald Trump [File photo: VCG]

The U.S. President Donald Trump [File photo: VCG]

When we look at the enterprises and stakeholders' speeches at the hearings, they were really worried about two things. One is costs. Tariffs imposed on Chinese products will definitely increase costs for both sides. Perhaps the US government can collect more duties in the short term. But in the long run, both American consumers and producers will feel the pain. 

US consumers might choose what to buy or not to buy, but US producers rely on quite a lot of intermediate products and materials imported from China, meaning US exporters will have to increase their export prices and lose competitiveness in international markets as a result.

The other thing people are worried about is the substitution of imports. China has gained its position in the international supply chain and has a complete manufacturing system. 

By contrast, it is not easy in other countries to build such an equivalent system and deliver products on time. That means if the US imports intermediate products or materials from other countries, they may face supply and quality problems.   

Moreover, even if the Trump administration launches more tariffs in the near future, the impact on China may be reduced compared to the initial 50-billion-US-dollar tariff and have diminished margin impact.

In this stage of globalization, all countries are playing their own part in the supply chain. In the past decades, quite a lot of companies chose China as the place to produce, assemble and export to other places. The market has played its role to improve supply efficiency through cooperation and competition. 

When market interference changes, investors may choose other methods to protect their wealth. Sometimes real estate or other assets will be appreciated by the hot money, which is one of the key problems that the central banks worry about.

If companies have to make further reconstruction, their efficiency would slow or be more costly to reach the same standard. A more challenging problem is the uncertainty in markets. Companies have to wait longer to make further decisions in the US market. 

If they believe that the US government may continue its protectionism practices and face retaliation by others, they may try to transfer part of its supply chain to other countries to avoid the uncertainty. 

And even if they have to stay in the US to proceed with business, they may choose to make a short-term investment to reduce their exposure to higher risks. Either way, competitors in other countries may get a chance to overpass them with a better and more stable environment.

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LU Xiankun Professor LU Xiankun is Managing Director of LEDECO Geneva and Associate Partner of IDEAS Centre Geneva. He is Emeritus Professor of China Institute for WTO Studies of the University of International Business and Economics (UIBE) and Wuhan University (WHU) of China and visiting professor or senior research fellow of some other universities and think tanks in China and Europe. He also sits in management of some international business associations and companies, including as Senior Vice President of Shenzhen UEB Technology LTD., a leading e-commerce company of China. Previously, Mr. LU was senior official of Chinese Ministry of Commerce and senior diplomat posted in Europe, including in Geneva as Counsellor and Head of Division of the Permanent Mission of China to the WTO and in Brussels as Commercial Secretary of the Permanent Mission of China to the EU. Benjamin Cavender Benjamin Cavender is a Shanghai based consultant with more than 11 years of experience helping companies understand consumer behavior and develop go to market strategies for China. He is a frequent speaker on economic and consumer trends in China and is often featured on CNBC, Bloomberg, and Channel News Asia. Sara Hsu Sara Hsu is an associate professor from the State University of New York at New Paltz. She is a regular commentator on Chinese economy. Xu Qinduo Xu Qinduo is CRI's former chief correspondent to Washington DC, the United States. He works as the producer, host and commentator for TODAY, a flagship talk show on current affairs. Mr. Xu contributes regularly to English-language newspapers including Shenzhen Daily and Global Times as well as Chinese-language radio and TV services. Lin Shaowen A radio person, Mr. Lin Shaowen is strongly interested in international relations and Chinese politics. As China is quite often misunderstood in the rest of the world, he feels the need to better present the true picture of the country, the policies and meanings. So he talks a lot and is often seen debating. Then friends find a critical Lin Shaowen criticizing and criticized. George N. Tzogopoulos Dr George N. Tzogopoulos is an expert in media and politics/international relations as well as Chinese affairs. He is Senior Research Fellow at the Centre International de Européenne (CIFE) and Visiting Lecturer at the European Institute affiliated with it and is teaching international relations at the Department of Law of the Democritus University of Thrace. George is the author of two books: US Foreign Policy in the European Media: Framing the Rise and Fall of Neoconservatism (IB TAURIS) and The Greek Crisis in the Media: Stereotyping in the International Press (Ashgate) as well as the founder of, an institutional partner of CRI Greek. David Morris David Morris is the Pacific Islands Trade and Investment Commissioner in China, a former Australian diplomat and senior political adviser. Harvey Dzodin After a distinguished career in the US government and American media Dr. Harvey Dzodin is now a Beijing-based freelance columnist for several media outlets. While living in Beijing, he has published over 200 columns with an emphasis on arts, culture and the Belt & Road initiative. He is also a sought-after speaker and advisor in China and abroad. He currently serves as Nonresident Research Fellow of the think tank Center for China and Globalization and Senior Advisor of Tsinghua University National Image Research Center specializing in city branding. Dr. Dzodin was a political appointee of President Jimmy Carter and served as lawyer to a presidential commission. Upon the nomination of the White House and the US State Department he served at the United Nations Office in Vienna, Austria. He was Director and Vice President of the ABC Television in New York for more than two decades.