Bill Chen
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Completed 22-year military cycleUpdated Nov 24
The trade war started in 2018 by the U.S. against China. Now at the end of 2021, judging from the various signs in both countries, is China considered to have won?
In 2018, America imported 539 billion from China.

That figure crashed to 451 billion in 2019 because the tariffs kicked in.

Trump would have succeeded in reducing Chinese imports to less than 439 billion in 2020, or more than 100 billion compared to 2018 as supply chains reorganized.

Covid upset plans but American imports from China stood at 434 billion in 2020.

But this was only one half of the scissors strategy. Trump forced China to buy an additional 100 billion in American goods per year, whipping up anti-china sentiment to a frenzy both domestic and international.

Had covid not happened, he would have campaigned against Biden by declaring “I Donald j. Trump singlehandedly reduced the trade deficit by 200 billion”.

Instead of the president who bungled covid and killed more than 400,000 Americans.

Biden wouldn't have stood a chance without covid.

This year, America is estimated to import 480-500 billion from China. Exports to China is estimated at 130-140 billion, which gives us a trade deficit of 340-380 billion, not too far from 2018's record of 418 billion.

Did it go as planned, with a 200 billion reduction in the trade deficit?

No.

The bigger problem, however, isn't the policy failure, but the cost of implementation.

Tariffs work only if they succeed in shaping trade flow; the cost will land on the American consumer otherwise.

That is why this happened way back in March 2020:

U.S. excludes Chinese face masks, medical gear from tariffs as coronavirus spreads
The U.S. Trade Representative's office in recent days granted exclusions from import tariffs for dozens of medical products imported from China, including face masks, hand sanitizing wipes and examination gloves, filings with the agency showed on Friday.
https://www.reuters.com/article/us-health-coronavirus-usa-tariffs-idUSKBN20T2ON
In other words, if other countries do not pick up the slack and China remains the most reliable supplier of goods in quantity, the cost will be locked in for the American consumer, because the alternatives either do not exist or are inferior.

Unfortunately, America in 2021 faces huge inflationary pressures from logistic and manpower bottlenecks, commodity price explosion and irresponsible monetary policy.

Let's play with some numbers to get a feel for the problem.

Before tariffs in 2018, let's say we have a Chinese product with a factory price of 100.

Typically, container shipping is 2-14 percent of cargo value, depending on dimensions.

Choosing the lower end for small retail items and components, American importers would have paid 102 shipped.

In 2019, the tariff would have raised the cost to 102x1.2=122.

A 90-10 split for the tariff rounds the import cost to 120.

Which is no different from the Chinese throwing in free shipping on their end.

However, 2021 is radically different. Raw material prices have exploded due to rampant speculation. Wages are rising, and many job openings are unfilled. Covid channeled spending from services to goods and demand exploded. This was exacerbated by the effect of covid on the logistics chain, and American inaction. What makes the pain worse is the 10 percent appreciation in the Chinese yuan.

Container prices are now 10x pre-covid. That means shipping cost is now 20-140 percent.

Assuming a 10 percent rise in producer prices, the American importer now pays 100x1.1x1.1x1.2x1.2=174 (exchange rate, producer inflation, shipping, tariff) for the same good, with inferior fulfillment time.

Removing the tariff will bring the price down to 145.

From 102 in 2018, to 120 in 2019, to 174 in 2021, a rocket 70 percent. The pain is even worse for bulky items with high shipping cost. What's scarier is we have not considered the retail markup which is affected by domestic inflation in rent and wages.

The key question is whether America can endure the pain while it diversifies from Chinese suppliers. At the minimum, China appears to be the best option before the world returns to a semblance of normalcy post covid.

America must persist with illegal tariffs until robust alternatives rout Chinese competition. Otherwise the trade war remains an abject failure.