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US may be loser in US-China trade war

Trump's promise to tax Chinese imports may end up costing businesses and consumers

As Asia business correspondent for BBC World News, I have been monitoring and analysing Mr Donald Trump's rise to power very closely.

While he may be accused of flip-flopping on many issues, there is one thing he has been remarkably consistent on: China.

A nation that is "raping our country", he called it on the campaign trail. One that is "stealing American jobs".

Mr Trump has promised to slap a 45 per cent tax on Chinese imports if Beijing does not start playing fair, a move that has led to concerns over a US-China trade war.

He said his plan is good economics and would create more jobs in the US.

But many economists argue this would hurt US consumers more than it would hurt Chinese businesses.

Global research house Capital Economics said American consumers may have to pay up to 10 per cent more for Chinese-made goods if tariffs were imposed.

Those goods include laptops, refrigerators and mobile phones.

But it is not just Chinese companies making these products.

Many US firms have manufacturing bases in China and they would be hit by any kind of import tariffs as well.

Half of the US imports from China are electronics or machines, including Apple's iPhones.

What if the iPhones were to be made completely in the US, which is in theory at least, the new president's goal?

At least one study said the cost of an iPhone manufactured in the US would shoot up by only 5 per cent.

But that is only if the components are still sourced overseas. Make those parts at home and the price goes even higher, hurting profits of the US firms.

It is not just iPhones though. Tariffs would likely hit goods across a variety of sectors. A few other items that might be affected are:

  • Jeans
  • Toys, including sex toys
  • School supplies
  • Umbrellas
  • Rubber boots
  • Christmas lights

REALITY CHECK

While the China-bashing may appeal to Mr Trump's voting bloc, it is "unclear just how they (the Trump administration) would raise the tariffs they keep talking about", said Ms Deborah Elms from the Asian Trade Centre.

Under US law, you can raise tariffs on the goods of other countries by only up to 15 per cent, she added.

"They may start with slapping tariffs on specific sectors, like Chinese steel. And that would almost certainly see retaliatory moves from the Chinese," Ms Elms said.

Capital Economics estimated if the US stopped buying goods from China altogether, it could shave three percentage points off China's GDP.

With China's economy already slowing down, this is an unthinkable scenario for Beijing. Social stability depends on economic growth.

Already, China has been clear about what a trade war with the US could look like.

"A batch of Boeing orders will be replaced by Airbus," read the state-backed Global Times editorial page.

"US auto and iPhone sales in China will suffer a setback, and US soybean and maize imports will be halted."

PLANE TALKING

Many American firms, such as Boeing, depend heavily on business from China, and there are thousands of American jobs back home tied to these businesses.

The rising consumption and the potential 1.3 billion customers mean China is a market that American companies cannot afford to be left out of.

China's smartphone market, for example, is larger than the US' and Europe's combined.

Besides planes, these are some other popular US products sold in China: Hollywood films, soy beans - China is thought to currently buy 60 per cent of the US' soybean exports - orange juice, Alfafa sprouts and hay.

HISTORY LESSON

"Nobody wins in a trade war", said China's President Xi Jinping in a recent speech.

He is right, if history is anything to go by.

In the aftermath of the Great Depression, the US Congress slapped tariffs on the countries that shipped goods to America in an effort to shield US workers.

It was called the Smoot-Hawley Act after two Republican congressmen.

The other countries retaliated with their own tariffs. A trade war ensued, and global trade fell by 66 per cent, dragging down the world economy with it.

Some economists argued this made the Great Depression last much longer than it needed to.

Sometimes history, and not economics, is the best teacher.

Karishma Vaswani is BBC World News' Asia Business Correspondent. For more, visit bbc.com/news

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