More tariffs may not have the effect that Trump presumes

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]

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.