This is why tariffs might be short-term pain for the US, but itâs far greater long-term pain for China. Once manufacturing leaves itâs not likely to return.
They will move American bound supply chain out of China. It doesnât mean all of it, but enough content or value add so that the country of origin will not be China. That said I donât think anyone is planning to move 100% out of China.
For a typical US Tech company focused on the enterprise market, US is probably about 40% of their revenue. So that much of the supply chain will move out for them. Not sure about other verticals to figure out what the percentage will be
Btw moving out of China doesnât mean it comes to US. More often then not, itâs going to Vietnam, Taiwan, Mexico, etc
The goal is fair trade. China isnât going to remove tariffs and change policy, because they feel like being nice. Current policy is to their advantage. Theyâll only give up the advantage if we force it.
What Marcus said is impact of the issue, but not necessarily the goal of the issue.
The goal is to avoid imports, avoid external hires (H1B), Avoid new immigration so that companies are forced to employ local people and forced to source locally.
Many countries resort to such protectionism to focus on local employment and local economy.
Below is my own opinion/Analysis:
Second, the Chinese stocks going down. Trade war is recent origin, but Chinese stocks, EM (Emerging Markets) came down way long before Tariff is announced appx Jan 2018 onwards.
Since corp tax is reduced in USA, US companies bottom line is improved.
Many US based Hedge funds, Mutual Funds, International funds selling the international Stocks (Including Chinese and emerging market) and moving to US stock companies as they can get higher returns in view of Corp tax reduction.
Even if trade war is not there, Entire world stocks will sell off and US stocks will go up by this benefit of Corporate tax reduction as US became one of the tax haven state now.
If you closely look at, all these are started after Tax reduction is signed last December. The root cause, IMO, is corp tax reduction that attracts all over world money flow towards USA.
David Ricardo developed the classical theory of comparative advantage in 1817 to explain why countries engage in international trade even when one countryâs workers are more efficient at producing every single good than workers in other countries. He demonstrated that if two countries capable of producing two commodities engage in the free market, then each country will increase its overall consumption by exporting the good for which it has a comparative advantage while importing the other good, provided that there exist differences in labor productivity between both countries.[5][6]Widely regarded as one of the most powerful[7] yet counter-intuitive[8] insights in economics, Ricardoâs theory implies that comparative advantage rather than absolute advantage is responsible for much of international trade.