What is the China Trade War All About?

Stocks have not reacted too well to the recent snag in trade talks with China. Reportedly, China and the United States had been close to an agreement. However, that tentative agreement fell apart after China allegedly backtracked on some important concessions it had previously agreed to. The U.S. responded with 25 percent tariffs up from 10 percent on $200 billion of imports, with more to come soon if no deal is reached.

Stock markets don’t like trade wars because they have a very bad effect on the global economy. The U.S. seemingly has less to lose as it exported only $120 billion worth of goods to China in 2018, compared with the $540 billion it imported. Although China has a lot less American exports to tax, they can still cause a lot of damage. Many companies, such as Starbucks and General Motors, receive a lot of profits from China and could be hurt by Chinese retaliation. Although the U.S. would like to narrow the trade gap, they really want to stop China from continuing its widespread practice of stealing intellectual property from U.S. companies.

A new CNBC poll finds that 20 percent of U.S. corporations say China has stolen their intellectual property within the last year. IP theft — use of patents, trade secrets, trademarks, and copyrights without permission — is extremely costly. IP theft may not seem as egregious as taking physical property, but it represents either a loss of opportunity or loss of competitive advantage that reduces the revenue a company could have received.

According to CNN, the U.S. Trade Representative estimates the annual cost of this theft to be between $225 billion and $600 billion. Yet until recently, America declined to fight back: “After 20 years of having their way with the U.S., China still appears to be miscalculating,” noted a private-sector Reuters source apprised on the talks. Either way, the stock market will continue to react to new developments in the ongoing trade talks.