(RNN) – The United States and China are in the middle of a trade tiff.
Eager to protect American industry, President Donald Trump slapped tariffs on imported steel, aluminum, solar panels and washing machines. It all adds up to about $3 billion.
China retaliated by hiking tariffs on 128 U.S. products, including pork and fruit. Not surprisingly, those tariffs also add up to about $3 billion.
Here’s how things got to this point and where it could be headed.
Q: What are tariffs?
A: Tariffs are a tax paid on imports or exports. Sometimes tariffs are used to raise the price of imported products so that they don’t undercut domestic products.
Q: What's causing the US-China dispute?
A: A couple of things.
The president ran on a protectionist platform, saying the United States is the victim of unfair trade practices. He says these tariffs are an effort to level the playing the field.
Also, American companies have long accused China of stealing technology and intellectual property.
In addition, the US runs a huge trade deficit with China. Last year, it totaled $375.2 billion.
Q: What are the benefits of raising tariffs?
A: If foreign companies truly do have an unfair advantage, it puts them on more equal footing with their American counterparts. If US companies are making competitive products, they will be able to sell them at a higher price because they’re not being undercut.
Q: Is there a downside to raising tariffs?
A: Adding taxes to imports makes them more expensive to buy and can cost America jobs.
The Trump tariff on imported solar panels is 30 percent the first year, then gradually falls to 15 percent in four years. The US solar industry said the tariffs would cause 23,000 installers, engineers and project managers to lose their jobs.
Raising the tariffs on steel and aluminum will increase the cost of products made with them. That will show up in everything from buildings to cars.
Q: Could the tit-for-tat tariffs turn into a full-blown trade war between the United States and China?
A: It’s possible, but a trade war looks a lot different than what’s going on now.
A recent AP story called the situation at “‘slap-fight,’ not a trade war.”
Tariffs on each side totaling $3 billion sounds like a lot of money, but is a small percentage of all the goods and services traded between the two nations.
For 2017, the Commerce Department put that number at $636 billion.
Q: What reasons do Washington and Beijing have for avoiding a trade war?
A: There are no winners and, bottom line, they need each other.
The US and Chinese economies are the largest in the world. They buy hundreds of billions of dollars of each other’s products.
Escalating trade tensions will not only hurt their economies, but slow world economic growth.
Everybody loses then.
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