When the biggest importer raise tariff on the biggest exporter

When Donald Trump was running for president, he promised to bring back jobs to the US. It seems like he is taking actions already. Besides the raising tariff on Mexican imports by 20%, Donald Trump is continuing to build a strong protectionism market by planning to raise tariff in Chinese goods as he promised in his campaign, raising 45% tariff on Chinese imports. The tariff rate may even be higher on steel.

In 2014, 73% of the Mexican goods exported to the US, meanwhile only 13% of the US imports are from Mexico. Unless Mexico can find other destinations to export, Mexico does not have too much bargaining power against the US. However, unlike Mexico, China has much more bargaining power over the US on steel and other imports. China is the biggest producer and the US is the biggest importer of steel. Both sides are heavy relying each other.

steel

China is the leading world in steel production, source from WorldAtlas

steel-import

Top 25 steel importers nations/regions, source from World Atlas

According to World Atlas, the US is the largest steel importer and China is the largest steel exporter. If the US insisted of increasing tariff on Chinese steel, Chinese steel will be more expensive in the US market for business and consumers. Besides, there are already trade conflict between China and US over steel. The Department of Commerce of the US tried to enforce the anti-dumping tariff on China.

Dumping – an economics jargon which means when manufacturers export a product to another country at a price either below the price charged in its home market or below its cost of production

china-imports

US imports and exports in 2016, source from census.gov

chinese-export

Chinese exports by percentage, sourced atlas.media of MIT

In conclusion, if the 45% tariff is enacted, Chinese good will be more expensive on the US market. In the same time, if the cost of tariff is still cheaper than the cost of moving the manufactories back to the US and hiring US labors for American businesses, then the US consumers will only face products with higher price without job creations. But even moving the manufactories back to the US is cheaper than the tariff, the price will eventually increase when the cost of production increases.

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