US – China Trade War – Why is it so important for the world?

 

It’s been just a couple of days since the punishing US Tariff has been imposed on Chinese imports thus marking a beginning of the Trade War between the USA and its largest trading partner.

Getting into the technical aspects, US imposed 25% duty on Chinese imports worth USD 34 Billion comprising of goods like Chinese machinery, electronics, and high-tech equipment like computer hard drives and LEDs. China on the other end was entirely ready for such a move and has announced that it won’t be sitting idle. Countermeasures by China targeted agricultural products imported from the US like the soyabean and also meat & vehicles (Mint, 2018).  China also accused the US of launching the most significant trade war and vowed to take the case to WTO.

This trade war can be viewed as an unfortunate event in the history of world economics. It is an initiation of a Trade war after 90 straight years when one country had started others retaliated which led to the great depression in the world economy. This trade war will lead to a few pessimistic consequences not only affecting The USA and China but also the other countries which are an active participant in the world trade. There’ll be a significant impact on the global supply chains and it shall result in collateral damage to Asian firms as well.

Trump has been so unpredictable in his policies that no one would believe him even though he had mentioned the tariff levy at the beginning of the year. US industry has been facing problems with Chinese markets for a long time and Trump is not the 1st US President to resolve them. But the levy of tariffs on Chinese imports is a massive step which no prior President could take. The US is troubled with the structural problems as far as the Chinese market is concerned like the restrictions w.r.t. US Foreign investments in China, revealing of secrets and Intellectual Property Rights of Hi-Tech companies to enter China. China carries an intention to dominate the Hi-tech secrets and world industry which infuriated the Trump administration. However, this is a debatable point that the US will succeed. In a trade war, ideally, everyone is a loser. China will have a significant impact on the budget due to these tariffs and US market jobs and investments will not increase because there is too much uncertainty and unpredictability in the Trump Administration. The underlying question comes to how do you get out of this if the desired objectives are not accomplished? It will have a domino effect on the world economy which may be a cause of another major economic downturn.

Impact on the world economy – This trade war will have a disrupting effect on the multilateral trading arrangements and the global value supply chain. China has emerged as a sole challenger to US Hegemony and world economy architecture. “Made in China 2025” as mentioned in the 19th Party Report by Mr Xi Jinping along with Universal Chinese Currency, 5G, Financial Technology, Cloud Computing and AI are the few objectives which China wants to achieve and dominate the world market by 2025 (Deepak, 2018). However, after such a move by the USA, it’ll take a longer time.

Where’s it heading?

China has been brilliant on the items of imposing duties for example Soyabean imports from the US which will hit the US farmers from where Trump has got support. Correspondingly, duties on semiconductors by the US would have hurt China the most but thanks to the tied hands of Mr Trump.

China is also going to have talks with the European Union to fight the US together scheduled for 16-17th July (Tille Hoppe, 2018). China is also making a forum with WTO at the centre which may threaten the Trump Administration.

As mentioned earlier, no one will be a winner in a trade war. A trade war will lead to a decrease in a two-way exchange, decrease in production, decrease in investments and finally a decrease in jobs. Chinese are playing the cards well because they are the one who are responding. Also, during the recent years, China has started exporting technologies to the USA from where it used to ship sub-standard manufacturing products. This trade-war is of becoming the Hi-tech industry leader and of strategic dominance and not merely a battle of money.

India will also suffer due to this trade war as a result of collateral damage. Also, India will not be able to take advantage of the trade war as it does not have the strengths in the hi-tech industry. However, the impact will not be much. A 10% cut in imports results to decrease 1.9% of GDP in Taiwan, 1,3% in Malaysia, 0.9% in South Korea, 0.6% in Thailand but only 0.2% in India. We are domestically driven far more regarding consumption and investments (RSTV, 2018). However, having said this, the prices of the global value supply chain are likely to rise and Pharmaceutical industry in India will also be affected due to this Trade War.

Thinking on the other side, India and China will get closer to some extent due to this trade-war. China is already aligning closely with South Asian Nations since a few years now.

 

Bibliography

Deepak, B. (2018, July 7). Sunday Guardian. Retrieved from Sunday Guardian: https://www.sundayguardianlive.com/opinion/us-china-trade-war-kicks-off

Mint, L. (2018, July 9). Live Mint. Retrieved from Live Mint : https://www.livemint.com/Politics/3K0rSp3N7jJUACsMFfSeNM/Early-trade-war-victims-German-cars-and-American-steak.html

RSTV. (2018, July 6). RSTV. Retrieved from RSTV: https://www.youtube.com/watch?v=QtWlvqeGXlo

Tille Hoppe, R. B. (2018, July 8). Handelsblatt. Retrieved from Handelsblatt: https://global.handelsblatt.com/politics/chinas-eu-envoy-urges-tough-line-trumps-trade-policy-943023

Image – https://www.nationofchange.org/2017/07/30/china-america-doesnt-vision-strategic-plan-future/

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