100 types of plastic products, materials and equipment from China are included on the 10 July lists of goods that will be taxed. The list represents an approximate value of $200bn (€172bn) worth of Chinese goods. The list includes flexible tubes, pipes, hoses, PVC and other plastic tiles, flooring, furniture, bags and boxes, building products, luggage, plastic machinery and moulds.
Import taxes were also imposed on steel and aluminium from Canada, the European Union and Mexico earlier this year. The U.S. plastics industry relies on steel and aluminium imports to manufacture goods so these sanctions will also impact the plastics industry.
The Trump administration justifies the trade sanctions against China to protect US national security and intellectual property, and to reduce the U.S. trade deficit.
Trump and many others accuse China of unfair commercial practices.
China’s unfair commercial practices
- exporters receive export tax rebates and export subsidies;
- exporters receive subsidies for the construction of plants and the purchasing of equipment;
- exporters receive subsidies to cover start up losses and training costs;
- local and national governments finance start ups;
- China doesn’t respect quality and safety guidelines leading to lower production costs;
- strict control of the Chinese currency leads to an under evaluated currency making Chinese exports even cheaper;
- intellectual property rights & piracy – China copies almost everything;
- corruption: China bribes its way through (ex: How China accesses natural resources in Africa);
- child labour and inhumane working conditions.
China’s unfair commercial practices results in
- Chinese Trade Surplus with the US;
- many US jobs go to China because of cheap labour and low production costs;
- China has a huge cashflow and buys many US assets.
China is not the only one to blame for this distorted situation. US and the rest of the world have accepted a lot from China under the so-called “free trade” fairy tale.
Many US companies benefit from cheap labour and low production costs by running operations in China and importing cheap Chinese goods. We’ve all heard the smartphones stories: child labour, cheap production costs, high margins and trillions of profit.
Trump reminds us of the bad guy in the “Back to the Future” trilogy; Mad Dog Tannen. Many believe China needs to be stopped before it disrupts Western democracies like the oil crisis in the 1970s. Trump could be the right guy to win this trade war against China because he doesn’t really care about the consequences. His attention span is close to the one of the goldfish so he doesn’t really bother about the details.
One may ask the following questions. How far will this escalate and who will give in first? Will Trump push China into a corner and force it to capitulate? Will this be the ultimate power test for China? Will China come out as a winner or will it be domesticated by Trump? Will a trade war lead to social unrest in China?
What about the rest of the World? Japan is an ally of the US and their relationship with China has not always been “romantic”. India lives in the shade of China and could benefit from a weaker China. Turkey could also inherit some Chinese business.
What about Europe? Was it not Kissinger who said: Who do I call if I want to call Europe? The president of the EU Commission, Juncker, is not always sober. UK will be removed from the EU equation because of Brexit. Merkel has been long enough in power to have burnt her wings regarding European foreign policies. Spain is in a political crisis between corruption scandals and separatism. Italy has an extreme right political party in power. Greece was transferred to the bankers. That’s about it.
Will Mad Dog Tannen bluff his way through a trade war, domesticating China a little bit more? Will the trade war have a long lasting negative impact on the plastics industry or will the industry adapt, modernise and become more lean and agile? Or Will the trade war just fade away?