Tariff war between US and China

Law of "Unanticipated Consequences"

One of the most powerful laws in economics is the law of unintended consequences. As formulated by the American sociologist Robert Merton in a 1936 paper called “The Unanticipated Consequences of Purposive Social Action,” it says that consequences “are occasioned by the interplay of forces and circumstances which are so complex and numerous that prediction of them is quite beyond our reach.”

What are Tariff Barriers?

It’s well understood that tariffs on imported goods raise prices for domestic businesses and consumers. What’s less familiar is that tariffs are blunt instruments that strike every nation in a supply chain, not just the ones being targeted.

In the era of Globalization 

Globalization almost guarantees casualties from friendly fire. Take the U.S. tariffs on steel and aluminum. Chinese producers buy iron ore for steel from Australia, Brazil, India, Iran, South Africa, and Ukraine, and bauxite for aluminum from Australia, Brazil, and the poor West African nation of Guinea. All will be affected.

Is it easy for China to target retaliation?

It’s no easier for the Chinese to target their retaliation. Chinese tariffs on American-made cars seem like a hardship for Detroit. General Motors, Ford Motor, and Fiat Chrysler make most of their cars for the Chinese market through joint ventures in China. In reality, the main victims of China’s tariffs would be the shareholders and American employees of two German companies, Daimler and BMW. They export cars to China from plants in the South—Mercedes-Benz's in Tuscaloosa, Ala., and BMW in Spartan burg, S.C

25% Tariff on Soyabean

If China puts a 25 percent tariff on American soybeans, several things could happen. The Chinese could keep buying the American beans but pay more for them. Or they could switch to Brazilian soybeans. But Brazil wouldn’t be able to ramp up production enough to make up for all the missing American beans.

Tariff Barrier would last forever?

Computer models show that the harm of tariffs diminishes over time as suppliers and consumers learn to adjust. But the damage never goes away completely because the tariffs force commerce away from its ideal configuration. A tariff, like any other tax, creates a dead weight loss by stopping transactions that would benefit both buyers and sellers

Trade war could be disastrous.

While a trade war with the U.S. would be disastrous for China, national pride might impel Xi to fight on. The country has several levers remaining. It could block Qualcomm Technologies Inc.’s Spending purchase of NXP Semiconductor N.V. as part of an effort to bolster Chinese chip makers.

It could keep life difficult for American financial institutions and other service providers, which collectively run a trade surplus with China. It could allow—or force—its currency to depreciate, which would make its products more competitive. In extremis, it could stop selling the U.S. rare earth elements, which are used in high-tech magnets among other devices and are produced mainly by China.

US slaps 25% tariff on Chinese products

The list of Chinese products that the U.S. wants to slap 25 percent tariffs on is bemusing: malaria diagnosis kits, human blood antiserum, chain saws, pump-action shotguns, railroad tracks, and turbo propellers are name of few products.

It's more like a Chess game

Trump is playing chess with the Chinese. “It’s to create maximum political pressure and get all these issues on the table,” But American business leaders are getting nervous about the consequences of Trump’s threats, intended or otherwise.