29 Jun Economy update May 2019
The recent weeks have been very chaotic for the global economy, with the United States at the epicenter. Trump has been working at resolving what is seen as unfair business relations between the U.S. and several our trading allies, and adversaries. These trade disputes have been affecting the economies of all countries involved, and many who are simply on the sideline. The complications between the industries, domestic and abroad, are hard to follow but important, nonetheless.
The tariffs against China have been heightened. 30% on solar panels, (of which China is the world leader), 20% on washing machines, 25% on Chinese steel, and 10% on Chinese aluminum. These tariffs have influenced China’s economy to say the least. But Beijing is not without retaliation. They have levied tariffs on 128 U.S. products. This includes; cars, soy, aluminum, steel piping, and much more. This back and forward dispute has rattled the stock markets of both countries. China’s stock market capitalization has fallen from second in the world, to third behind Japan. This is without a doubt a troubling sign for their economy, and something that they intend to change.
The American economy is not on the most stable grounds in this dispute either. While most of the attention has been directed towards the agricultural blows, such as the soy and corn farmers. China may be ready to take advantage of the U.S. dependence on technology by means of their advantages in the rare earth metals industry. China has a near global monopoly on this industry because they have a yearly 44 metric tons, whereas the U.S. is in 14th place in this sector with only 1.4 metric tons. These metals are used in almost all high-tech items. From cellphones to the fiber optic cables that power our internet, and even weaponry, these rare earth metals are necessary for everyday life across the globe. Not only do they have most of the metals, but they also have 80% of the worlds rare earth metal mining, refining, and processing capacity. If China was to take advantage of this, it could be detrimental to more than just our economy.
Outside of our disputes with China, there are many other tariffs between the United States and other countries that have been playing into the current situation. The Trump administration has imposed a 5% tariff on all imports from Mexico, the second biggest exporter to the U.S. behind China. There was $346.5 billion worth of goods from Mexico alone in 2018. This includes cars, machinery, furniture, and all kinds of produce. This is to put the pressure on Mexico to adjust the influx of illegal immigrants to America. Although the tariffs on Canadian, Mexican, and European metals, such as aluminum and steel, were ended just last month, there are still many others still imposed on multiple countries currently. While Japan is working on eliminating the tariffs imposed on their auto industry, South Korea, India, and Australia are all on the list of remaining tariffs.
The United States under the Trump administration is continuing to find ways to further our economic position in the world. Restoring American industry is the priority for our White House. These tariffs may be confusing the market now, but the end goal is to ensure that America is secure in the moment and for years to come. Whether this strategy is going to work effectively or not, can only be decided by time. So, make sure that you are aware of the sectors of the market that are being affected by these global trade conversations so that you can be prepared for whatever may come.