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The trade war drags on ... and on, and on

28.05.2019

Reading time: 2 Min

The trade dispute between the US and China has escalated. The US policy is not just about balancing the trade deficit with individual countries. The strategic goal is the protection and exclusive use of American intellectual property. What significance do punitive tariffs have for companies and consumers, and what do investors have to keep in mind in this uncertain environment?

Punitive tariffs are a blunt sword. In a nutshell, the imposition of such tariffs results in a loss of prosperity for all countries involved, as is enunciated by three scientists from the American National Bureau of Economic Research in a recent study. The US administration’s trade policy weighs on prices as well as on the overall prosperity of American households.

The introduction of protective tariffs of 20 to 50 % on washing machines in the US at the beginning of 2018 offers a prime example of how companies are reacting to new import restrictions. American household appliance manufacturer Whirlpool had sparked the move after having complained for years about unfair trading conditions.

Trump’s tariffs were a boon for Whirlpool, which immediately hired 200 new employees. A year later, prices for washing machines in the US rose by an average of 12 % – but alas, fewer washing machines were sold.