After a long-sustained and ever-growing American dependence on Chinese goods became too much for Donald Trump to bear, the man of influence decided it was time for change. On Friday, the president imposed a 25% tariff on $50 billion worth of imports from China. Obviously unhappy, Chinese President Xi Jinping responded with a tariff of his own, also marked at 25%, on $34 billion of U.S. goods. Trump has since retaliated, threatening a tariff on an additional $200 billion in Chinese imports, which may or may not be implemented. This conflict has continued to be downward-spiraling, with citizens of both countries questioning if they’re in a “trade war” and, if so, what are its consequences? As people are beginning to worry about the current circumstances, many analysts have started weighing in on the issue. Fortunately, for the two largest economies in the world and their citizens, this “trade war” shouldn’t be all that problematic.
What exactly, though, is a “trade war?” According to Derek Scissors of the American Enterprise Institute, a trade war consists of actions that affect full economies of the countries involved, rather than just a few of their sectors. For this reason, journalist Richard McGregor does not (yet) consider this situation a trade war. However, others, like Asian Trade Centre founder Deborah Elms, argue otherwise. She remarks, “$50 billion one way, $50 billion back, escalation to an additional $200 billion. Plus investment restrictions. We’ve never seen anything like this.” Regardless of this tension’s classification, let’s take a closer look at its ramifications:
GBH Insights analyst Daniel Ives has surveyed potential implications of this young conflict, and for a number of reasons, cannot envision it having any significant impact on companies or individuals. After seeing the massive figure that is 200 billion, Ives realized that China would have tons of trouble keeping up with that number. Because China’s trade surplus has been narrowing consistently over the last few months, the nation cannot afford to match the $200 billion tariff.
Ives maintains that it’s going to be very difficult for China to make a legitimate trade statement without hurting its own economy, so any actions it does take should target U.S. brands operating on their land. These brands include many American tech powerhouses like Facebook, Apple, Amazon, Netflix, and Google (FAANG). For example, if China were to single out Apple, the trade war could interfere with foreign production, bringing about supply issues, or it could cause the loss of Chinese customers, limiting demand. As for the other companies, because of their “primarily services nature,” negatively affecting their business would be very challenging.
For the time being, Ives doesn’t expect tech investments to slow down much at all. The analyst doesn’t suggest buying any FAANG stocks, but he also doesn’t recommend selling them. Instead, Ives has high hopes for other domestic tech firms in the thriving IT sector, expecting “unparalleled growth” from their stocks in the next 6-12 months.
Throughout the last few weeks, the trade war talk has worried many people, but Ives insists that it poses no real threat. Even if Trump goes through with the 10%, $200 billion tariff, which very well may not happen, U.S. taxpayers would face a tiny burden at most. Overall, though, the analyst maintains that individuals as well as big businesses should have miniscule fear of these trade wars.