How the US-China Trade War is Making the Crazy Rich Chinese Poorer

Aktive Learning


By Property Soul (guest contributor)

Last Thursday, Donald Trump imposed new trade tariffs against China with 25 percent duties on 279 product categories worth a total of US$16 billion. China immediately responded by imposing retaliatory taxes on the same value of imported US products in 333 product categories.

Who are the winners or losers?

For China, since the total amount of exports to US (USD506 billion in 2017) is much higher than imports from US (USD130 billion in 2017), it is not possible to come up with a reciprocal amount in retaliatory tariffs.

However, China can take revenge by making it more difficult for US companies to do business in China.

That is why every time when there are new tariffs coming into force, the equity market will be under pressure, especially stock prices of US companies with significant business operations and sales revenue in China.

So far US companies impacted by the trade tariffs are from the automobile, heavy equipment, food and drinks industries. Many have to increase product prices and cut revenue forecasts.

The US-China trade war will also force US retailers to sell more expensive China products or alternative imports from other countries, resulting in higher prices for US consumers.

But Trump is not deterred by the consequences. He threatened a third round of tariffs on an additional $200 billion of Chinese goods involving more consumer products.

Trump said in an interview last Thursday, “I think that if I ever got impeached, the market would crash. Everybody would be very poor.”

Wow, that is really a huge threat to anyone who dares to challenge his legitimacy as the US President. The S&P 500 Index just closed this week at an all-time high, hitting a record of 3,455 days in a bull market – the second longest in history.

According to BBC, the index has increased 300 percent after the last financial crisis. Over the last 9 ½ years, it has benefited from low inflation, low interest rates, stock buybacks, slow wage growth and Trump’s corporate tax cut.

But this is good news for the rich only. In America, 84 percent of shares are owned by the top 10 percent richest households. On the contrary, the wealth of median households fell 30 percent between 2007 and 2016.

Feeling the heat of US trade tariffs in China

The rich Americans are richer, but the poor Americans are poorer. In the meantime, the rich Chinese are poorer because of the trade war.

The Shanghai Composite is down 18 percent since the beginning of the year. Early this month, China just lost its place as the world’s second largest stock market to Japan. The Chinese yuan has fallen 9 percent against the US dollar. China’s GDP is predicted to slow down to 6.3 percent in the second half of the year.

Alibaba’s Jack Ma told the media that he is not worried about the trade war. He believed the Chinese government will help China enterprises to find alternative sources of US imports and exports on the tariff list.

This is just a face-saving act in front of the western media. Read the news headlines in mainland China and you will see a totally different picture.

Increased tariffs have pushed up costs of raw materials and parts for production. Some raw materials are under sanction. There is discontinuation in the supply chain or technology transfer in some trades. Finished products are piling up due to the closure of the large US export market.

Those who suffer the most are manufacturers or distributors with US as the only or major supplier or customer. They are struggling to maintain their business and pay off their loans.

With mounting debts, the number of liquidity cases of local enterprises is escalating. The Supreme People’s Court is now exploring ways to simplify the trial of bankruptcy cases.

In mid-July, local enterprise Sunrise Group, the largest soybean importer in China, filed for Chapter 11. Around 6,000 employees lost their jobs overnight.

Sunrise’s founder Shao Zhongyi (邵仲毅) is the richest man in Shandong with estimated 19 billion yuan (S$3.8 billion) in net worth. Nicknamed the “king of soybean”, his company accounts for one-tenth of total soybean imports in China. He is also a political representative in the National People’s Congress (equivalent to the parliament in China).

But Sunrise ran into financial difficulties from 2015 when its businesses in soybean, crude oil and petrochemicals were not doing well. With banks tightening on credit, the company could barely survive on debts. The last straw was the escalating prices of soybeans from US in the trade war.

Earlier this month, tyre maker Yongtai Capital Group also filed for bankruptcy. The 10th largest tyre company in China was once ranked 32nd in world’s most powerful tyre companies by US magazine Tyre Business in 2016. The company was founded in 1996 and employed 5,000 people at its peak.

The US is the main export market that accounts for 40 percent of tyres made in China. But in early July, US imposed 25 percent duties on tyres imported from China.

China has ordered provincial government to estimate the impact of the trade war on affected companies, while keeping things low profile for an obvious reason.

Hold your breath for what’s coming

In June, the tit-for-tat trade war also spread to the European Union, with EU charging 25 percent retaliatory taxes against 2.8 billion euros worth of U.S. goods, in response to Trump’s trade tariffs on steel and aluminium. EU said another 10 to 50 percent tariffs could be imposed on 3.6 billion euros of US imports in three years’ time.

Analysts warn a full-blown global trade war may lead to global recession.

Do you think Trump cares about the next global financial crisis or economic recession? He cares for nothing except his own interests. It is other countries’ problems. Let them settle it on their own.

Trump is taking full advantage of China’s looming debt problem to attack its enemy in a trade war with no end in sight. Analysts also worry that the trade war and interest rate hike will have a domino effect on the collapse of the local economy in emerging markets. The Guardian lists China as one of the four high-risk countries.

After all, nobody has the complete picture of the actual financial status of local enterprises and banks, the real impact of banks’ tightening of borrowing, and the extent of impact of the trade war in the country.

Now the world is looking at China. We all understand that, so long as China’s economy is intact, we can avoid the collapse of the global economy.

For the past few years, rich Chinese who snapped up foreign properties everywhere are blamed for creating the property bubble in many countries. When property markets are slowing down one by one (including Australia, UK, Canada and the US), the rich Chinese are now blamed for bursting the bubble.

It all started with the control of capital outflow. And now it is the impact of the US-China trade war.

A Singapore industry stakeholder commented that the local real estate market will continue to grow because foreign buyers, especially the well-to-do Chinese, are still buying.

I don’t think so. They have enough problems of their own.

By guest contributor Property Soul, a successful property investor, blogger, and author of the No B.S. Guide to Property Investment.

Posted courtesy of www.Propwise.sg, a Singapore property blog dedicated to helping you understand the real estate market and make better decisions. Click here to get your free Property Beginner’s and Buyer’s Guide.

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