Talking to Your Kids About (Trade) War

There’s a new kind of war being talked about today. Its name? “Trade war.” No, this isn’t a war of weapons. It’s a war of money. Big money. At the center of the fight is the difference between the total value of the goods created in America and purchased by consumers in China, versus the total value of those produced in China and purchased by consumers here.

But all of the technical details are sohazy that people on both sides of the debate insist the other doesn’t even understand their own position.

So what are the Biz Kid basics? Here are the main points:

Chinese goods are typically cheaper.

Americans purchase a lot of things manufactured in China. From electronics to furniture and clothing, goods made in China are typically cheaper—way cheaper—than those made in the US. Some argue that it’s all due to an intentionally deflated (translation: less valuable) currency. The result is that American consumers tend to take the lower prices over supporting American-made goods. To change that, the White House has proposed a tariff (a tax on something made elsewhere that’s being sold in the United States) that would make Chinese goods a bit more expensive. Right now, the plan is roughly 20%. The idea is that the increased prices would make American goods more attractive to consumers. So what could go wrong with that?

Who pays those tariffs? All of us.

The counter argument has to do with two things: who pays the tariffs, and what China will do in response. If a Chinese television has a 20% tariff slapped on it the moment it reaches American shores, it isn’t China who will foot the ultimate bill. It’s the Americans who purchase the TVs. As a result, many see the tariffs as a tax not on Chinese manufacturers, but on American buyers. Plus, there’s another ripple effect: China has already said it will respond with tariffs of its own. That could make American goods less attractive in China, which would hurt farmers and makers across our country.

What happens next? It’s anyone’s guess.

Both sides could say “never mind.” Or both sides could dig their heels in further. One thing is certain: no one knows for sure. And if there’s one thing the stock market hates, it’s not knowing what the future holds. At the second you’re reading this, here’s what’s happening on the floor of the New York Stock Exchange:

For more information about international currency, check out Biz Kid$ episode The Value of Money.