Trade wars between two worlds leading economies the United States and China will not only affect consumer prices in the two countries but the world at large.

United States of America President Donald Trump asserts that tariffs import taxes — will create more factory jobs, shrink the federal deficit, lower food prices and allow the government to subsidize childcare.

This is after President Trump imposed tariffs with a flourish — targeting imported solar panels, steel, aluminum and pretty much everything from China. “Tariff Man,” he called himself.

While it is not the first time Trump has hiked the tariffs, this time, he has gone much further by proposing a 60 per cent tariff on goods from China — and a tariff of up to 20 per cent on everything else the United States imports.

Tariff proposal

A report from the Peterson Institute for International Economics concluded that Trump’s main tariff proposals – assuming that the targeted countries retaliated with their own tariffs — would slash more than a percentage point off the United States economy by 2026 and make inflation 2 percentage points higher next year than it otherwise would have been.

The United States in recent years has gradually retreated from its post-World War II role of promoting global free trade and lower tariffs.
That shift has been a response to the loss of U.S. manufacturing jobs, widely attributed to unfettered free trade and an increasingly aggressive China.

However, President Trump insists that tariffs are paid for by foreign countries. According to the US leader, it is the American companies that pay tariffs, and the money goes to U.S. Treasury.

Those companies, in turn, typically pass their higher costs on to their customers in the form of higher prices.

That is why economists say consumers usually end up footing the bill for tariffs.

Still, tariffs can hurt foreign countries by making their products pricier and harder to sell abroad. Kenya relies on imported goods and services from China, US and other global economies.

Kenya imports

Kenya imports many products from the United States, including machinery, petroleum products, pharmaceuticals, and cereals while it imports a variety of goods from China, including electronics, pharmaceuticals, and vehicles.

Shanghai’s Fudan University economist Yang Zhou, in his study concluded that Trump’s tariffs on Chinese goods inflicted more than three times as much damage to the Chinese economy as they did to the U.S. economy
Zhou argues that by raising the price of imports, tariffs can protect home-grown manufacturers.

They may also serve to punish foreign countries for committing unfair trade practices, like subsidizing their exporters or dumping products at unfairly low prices.

According to Zhou, tariffs on farm imports could lower food prices by aiding America’s farmers. Tariffs on imported food products would almost certainly send grocery prices up by reducing choices for consumers and competition for American producers.

Tariffs can also be used to pressure other countries on issues that may or may not be related to trade. In 2019, for example, Trump used the threat of tariffs as leverage to persuade Mexico to crack down on waves of Central American migrants crossing Mexican territory on their way to the United States.

China is one of the United States’ biggest trade partners, receiving more than 20 percent of America’s exports and among the top three leading countries from which imports derive, according to the U.S. Census Bureau.

With the trade war continuing between the world’s two largest countries, industries and businesses are feeling the effects, in varying degrees, from the ongoing economic conflict of the tit-for-tat tariff duel.

The business owner community has largely been united in their displeasure of the tariff back and forth with many being driven to diversify their sources for imports. In the wake of the escalating trade battle, more and more companies are announcing plans to shift manufacturing from China.

Perhaps the most straightforward way to avoid tariff trouble is by buying domestic. The government must provide a conducive environment for investors to put up manufacturing plants locally to enable consumers purchase locally made goods. This will reduce the cost of various commodities.

The writer is the Chairman, Political Journalists Association of Kenya (PJAK)