Everything that China exports to the United States is subject to a tax.

American president, Donald Trump, raised a commercial wall to goods that come from Beijing.

After the last 10% tax announced last week and which will enter into force next September, 96.7% of all Chinese exports suffers a tariff barrier, according to the calculations of the Peterson Institute For International Economics (PIIE).

This is the highest point in the trade war between the two countries since the 1930s.

These measures mean a return to the levels of the infamous Smooth-Hawley Tariff Act of 1930, which came into force during the Great Depression.

If you look at a historical perspective, the arrival of Donald Trump has meant a before and after in the relationship between the two economic giants.

Before the president aived in the White House, the average rate of United States tariffs applied to China was only 3.1%. However, as of 2018 the average rate went to 27.8%.

The largest increase took place between the end of 2017 and 2018, when in a few months 8% of Chinese goods were loaded with tariffs when arriving in the United States.

This is the largest rate increase in history between the two countries. Specifically, tariff barriers apply to all toys and sportswear from China, 93% of footwear, and 90% of textiles. Transport equipment and chemicals are barely saved from them.

With Trump, trade is facing a structural challenge that will not be resolved in a meeting.

The United States sees China as a threat and wants it to change its economic model, stop supporting its companies, respect intellectual property, and so on. In a word, stop being Chinese. But Beijing will never accept external inspections. And so the conflict is escalating.

We do not believe that Trump’s latest threat causes the Chinese government to deviate, especially in a sensitive year in which the Communist Party is preparing to celebrate the 70th anniversary of the founding of the People’s Republic of China.

Chinese leaders are not hoping that Trump is unseated. They are looking for reasons to wait and see, instead of trying to reach a quick agreement with additional commitments.

What is the logic then? 

Although the US is risking some, China will lose more if this trade war continues.

The current 25% tariffs on Chinese exports worth 250 billion dollars can reduce the growth of Chinese GDP by approximately 0.5% annually, and the additional 10% tariff on Chinese products worth 300 billion dollars, could increase that drop another 0.2%.

However, the decision to raise taxes on Chinese products should not only be examined externally.

On the one hand, Trump thus maintains his electoral base, the industry affected by Chinese competition, and on the other he sends a message to the Federal Reserve, because the measure was announced the day after the central bank cut interest rates by 0.25%, arguing the presence of risks in world trade.

You have to wonder if this new tariff would have been announced in the same way if the Fed had been more aggressive.

It is not a mystery that Donald Trump was in favor of applying larger cuts in interest rates to further stimulate the economy.

So, by tightening the commercial nut even more, the US president provides more arguments for a future cut by the Fed, which would further help the economy; always with an eye on the polls.

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