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US-China Spat Is about Much More than a Trade Deficit

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US-China trade spat

The US-China trade spat has seen escalation as new tariffs have gone into effect this week. The United States still has several Chinese goods that it could potentially target in a third round of tariffs.

However, China has already imposed tariffs on practically all the goods it imports from the United States, so the country would have to look for alternate ways to retaliate if the Trump administration were to go ahead with a third round.

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To be sure, the second round of US tariffs, as well as China’s response, was softer than what markets were expecting. Having said that, we’ve seen a war of words between the two sides, suggesting that the trade spat is here to stay. Alibaba’s (BABA) Jack Ma also expects the trade spat to be a drawn-out affair.

Tariffs

Speaking of tariffs and the trade war, while some sectors, such as the steel industry, have welcomed President Donald Trump’s resolve to protect US manufacturing, many companies have come out against the tariffs. Walmart (WMT), Amazon (AMZN), and Alphabet (GOOG), for example, are lobbying against the tariffs. Broader US equity markets have, however, largely defied the trade war pessimism, and the PowerShares QQQ Trust, Series 1 ETF (QQQ) is up a handsome 18.7% year-to-date based on its September 24 closing price.

The United States wants China to cut its burgeoning trade deficit with the United States. However, the deficit widened to a record high in August even as China’s overall trade surplus fell in the month. Having said that, there looks more to the trade spat. We’ll discuss this in the next article.

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