Even the largest political novice knew Donald Trump’s election as US President would affect not just the US but also the rest of the world. And while not everyone is a Trump supporter it’s essential to take a keen look at his influence on international share trading. There’s another president we need to keep an eye on – China’s Xi Jinping.
His Communist Party is currently tabling constitutional reform to extend term limits. If they succeed, his presidency could stretch beyond 2023, and this is important because one of his biggest initiatives is ‘Made in China 2025’. It aims to strengthen the hold of technology in China. A large part of the world’s electronic components and gadgets are assembled in China, because of their high technical skills and low labour costs.
However, many of these products are designed and manufactured elsewhere, with China functioning merely as a low-level station on the conveyor belt. The role isn’t restricted to technology but extends into clothing, consumer goods, and pharmaceuticals. ‘Made in China 2025’ aims to move China higher up the commercial food chain by imposing harsher terms and requiring foreign companies to hand over proprietary rights and trade secrets.
While Trump was campaigning, one of his platforms was to renegotiate trade deals and tax China by up to 45%. On 23rd January 2018, he came through, imposing tariffs on washing machines and solar panels. China was hardest hit, being a global leader in both solar panel and washing machine exports, more so to the US.
On 1st March, Trump followed up with aluminium and steel import tariffs (10% and 25% respectively), accusing China of stealing intellectual property and taxing $50 Billion in Chinese goods. It was more of a symbolic blow since China doesn’t sell much of either metal to the US. Still, there were worries that China would retaliate, she finally did. On 2nd April, China issued a list of 128 products that would be taxed with US-targeted tariffs.
This tariff covers a 15% levy on 120 fruit and wine products like sparkling wine and apples. China also applied a 25% tax on pork, scrapped aluminium, and six other products. These are products that US ‘farm states’ heavily rely on, and these are states that largely voted for Trump, so they seem to be a specific target for the tariffs.
On the 3rd of April, the US released a ‘revenge’ list of over 1,300 Chinese products - mostly electronics – such as plane parts, medical gadgets, flat-screen TVs, satellites, batteries, and weapons. In response, China announced a 25% tax on US imports on April 4th. The tariff includes its top US import – soybeans – as well as cars and planes for a total of 106 products.
At the moment, the US is trying to shift reliance on Chinese tech imports and labour, while China is working for a more significant stake in the industry that thrives on cheap labour. China wants to do this by building its own tech industry instead of being a lowly adjunct to the global tech assembly chain that is driven by the US.
China admits that it has more to lose in this trade war, but they’re determined to hold out. They continue to insist that foreign companies use local partners when they assemble automobiles and similar products, thus allowing an opportunity for Chinese firms to acquire foreign technology and intellectual assets. Failure to comply can lead to withheld licensing.
Meanwhile, the US has already launched a complaint against China at the World Trade Organisation. The US is expected to try and recruit Europe and Japan in further attempts to pressure China at the diplomatic and economic level of WTO. As an Australian investor interested in overseas stock trading, it is worth following these economic battles closely.