Type
Essay
Pages
12 pages
Word Count
5166 words
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Course Code
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December 26, 2019
The US-China trade war
Evaluation study of potential impacts on the
FOOTWEAR INDUSTRY
by
Portuguese Shoes
The US-China trade war
Copyright
APICCAPS • APRIL 2019
Who we are
World Footwear is an initiative of APICCAPS, the Portuguese Footwear,
Components and Leather Goods Manufacturers’ Association, and it includes two
communication channels: an annual edition of the World Footwear Yearbook and
an electronic platform with updated industry news (www.worldfootwear.com).
The first edition of the World Footwear Yearbook, a comprehensive report
that analyses the main trends within the footwear sector around the world,
was released in September 2011, with new updated editions published on
a yearly basis. Each report is published with the most updated data up to
the previous year and analyzes the position of the relevant countries of
the footwear industry in terms of different variables (Production, Exports,
Imports and Consumption) and evaluate the strategic positioning of the
different sector players. The World Footwear Website disseminates all
relevant news about the worldwide footwear industry on a daily basis.
Disclaimer
This report was prepared by the Research Centre in Management and Applied
Economics (CEGEA) of Católica Porto Business School for APICCAPS.
Although due care has been taken in the preparation of this report, APICCAPS
cannot guarantee the accuracy or completeness of the report and cannot be
held responsible for any error or the opinions expressed herein.
www.worldfootwear.com
Contents
1
Recent developments in the
United States trade policy
05
2
Economic theory on
the impacts of tariffs
07
3
Quantitative estimates
of the impacts of tariffs
10
4
Potential effects of the
US-China trade war on
the footwear industry
13
5
References
16
The US-China trade war
www.worldfootwear.com04
Even if the process was not continuous or linear, for most of the twentieth
century there was a trend towards the progressive integration of markets
that paved the way to an unprecedented rise in living standards worldwide.
The establishment of a multinational framework to regulate and facilitate
international trade – through the General Agreement on Tariffs and Trade
(GATT), first, and the World Trade Organization (WTO), later – was a
cornerstone of this process and allowed a dramatic decrease of barriers to
trade, especially tariffs. In the US, for example, the duties collected on dutiable
imports fell from 49.2% in 1900 to 4.8% in year 2000.
The US were among the key proponents and supporters of the liberalization
of international trade. However, with the election of President Trump, this
country’s stance seems to have changed. The US have recently been increasing
tariffs selectively, targeting specific products and countries, renegotiating
trade agreements, and President Trump has claimed that “trade wars”
are beneficial and can be easily won. Many fear that the current apparent
preference of the US for bilateral negotiation of trade issues may jeopardize
the multilateral framework that, its limitations notwithstanding, has been so
successful.
This paper analyses the relevance of these developments for the footwear
industry. It starts with a brief description of the recent changes in the US
trade policy (section 1), followed by a presentation of the main results in the
economic theory on trade tariffs (section 2) and a summary of recent studies
that have tried to quantify the impacts of the ongoing changes in trade
policies around the world, particularly in the US (section 3). Finally, section 4
discusses the potential effects of an extension of the US-China trade war to
the footwear industry.
1891 2011
60
40
20
0
Source: US International Trade Commission
Figure 1 – United States: Duties collected / Dutiable imports
Potential impacts on the footwear industry
“Trade wars are beneficial
and can be easily won”
Donald Trump
The US-China trade war
www.worldfootwear.com 05
In 2018, the US have made or suggested noteworthy changes in their trade
policy centred on four groups of products:
i. Solar panels and washing machines – in January 2018, President Trump
approved tariffs on 8.5 billion dollars of solar panels imports and 1.8 billion
dollars of washing machines imports. The tariff on solar cells was set at
30% in the first year, declining 5 percentage points per year to 15% by the
fourth year; the washing machines’ tariff was set at 20% on the first 1.2
million imported units, increasing to 50% on machines above that number,
percentages that will decline to 16% and 40% in the third year;
ii. Steel and aluminium – invoking national security arguments, in March
President Trump announced tariffs of 25% on steel imports and 10% on
aluminium imports, covering an initially estimated value of 48 billion
dollars. In the case of Turkey, these tariffs were doubled in August;
iii. Technology and intellectual property – also in March, the US invoked
unfair commercial practices by China, to announce tariffs of 25% on a
list of Chinese products covering 50 billion dollars of imports, including
machinery, mechanical appliances, electrical equipment, miscellaneous
manufactured products and transportation equipment. This list was later
revised and the first phase went into effect in July. An additional list of
products whose imports amount to 200 billion dollars was later released,
subject to a 10% tariff that went into effect in September (and increased
to 25% in January 2019). This list includes intermediate goods such as
computers and auto parts, but also consumer goods;
iv. Automobiles – The Trump administration was also said to be considering
raising tariffs to 25% on automobiles and a set of associated products,
affecting more than 200 billion dollars in US imports (not counting auto
parts).
Simultaneously, the US held negotiations with its neighbours Canada and
Mexico to replace NAFTA, with the new USMCA agreement being concluded
in November and waiting ratification. This new agreement includes stricter
country of origin and labour rules for automobiles: 75% of the value of a
vehicle must be produced in United States, Mexico or Canada to qualify for
zero tariffs and 40 to 45% of the its value must be produced in areas with
salaries of at least 16 dollars per hour.
1. Recent developments in the
United States trade policy
Recent developments in the United States trade policy
The US-China trade war
www.worldfootwear.com06
January Solar panels and washing machines import tariffs announced by the US
March Steel and aluminium import tariffs announced by the US
June
Steel and aluminium tariffs extended to EU, Canada and Mexico
EU levied tariffs on 3.2 billion dollars of US imports
Mexico announced retaliatory tariffs on US exports
July
Tariffs on 34 billion USD of imports from China implemented by the US
China retaliated by implementing tariffs on the same amount of US imports
Canada imposed retaliatory tariffs on US exports
August
Tariffs on an additional 16 billion USD of imports from China implemented by the US
China retaliates by implementing tariffs on the same amount of US imports
Turkey steel and aluminium tariffs doubled
September Tariffs on an additional 200 billion USD of imports from China implemented by the US
China retaliates by imposing additional tariffs on an additional USD 60bn of imports from US
November U.S.-Mexico-Canada Agreement signed (still waiting ratification)
December 90 day truce agreed between US and China (import tariffs on hold, restart of negotiations)
Recent developments in the United States trade policy
Several US trade partners have announced retaliatory measures. Examples
include:
• the European Union levied tariffs on 3.2 billion dollars of US imports in June,
including whiskey, tobacco, motorcycles and peanut butter; this led firms like
Harley-Davidson to announce that they were planning to shift production to
international facilities outside the United States;
• Canada retaliated with tariffs on US metal products, beer kegs, whiskey and
orange juice covering the same value of metal exports affected by the US tariffs;
• Mexico imposed tariffs on US agricultural products (including apples,
potatoes, cranberries and cheese), pork, bourbon and steel products,
covering an export value of 3 billion USD;
• Turkey raised tariffs on US cars, alcoholic drinks, tobacco, rice and cosmetics;
President Erdogan also threatened to boycott Apple’s iPhones;
• China issues and revises its retaliatory list of products following each Trump’s
administration tariff announcement, including agricultural products (such
as soybeans), lobsters, whiskey and automobiles, implying that 85% to 95%
of US exports to China are now facing tariffs.
In 2018 alone, President Trump imposed new trade restrictions on 12% of
US imports (representing around 300 billion dollars), while the combined
retaliation measures of the country’s trade partners covered 8% of the
country’s exports, more than 125 billion dollars.
Table 1 - Summary of trade restrictive measures by the US and retaliatory measures by other nations in 2018
The US-China trade war
Economic theory on the impacts of taris
A tariff is one of the simplest instruments of trade policy: it is a tax levied when
a good is imported. Historically, governments have used tariffs to protect
domestic industries, to combat trade imbalances, and to generate revenue.
Textbook economic theory of international trade generally analyses the impact
of tariffs in a simplified two-country setting. It is assumed that two countries
produce some good and trade it in the international market, at a common
equilibrium price. One of the countries produces more of the product than it
consumes and exports the surplus to the other country where, necessarily, the
opposite is true. The question of interest is what happens in this setting if the
importing country levies a tariff on these imports.
Economic theory shows that the impacts of the tariff depend on whether the
importing country is large or small. Large and small, here, refer to whether the
country’s decisions have an impact on the price of the good in the international
2. Economic theory on
the impacts of tariffs
Impacts of the tariff
depend on whether the
importing country is
large or small

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