Emerging as a real vendetta between both countries, the U.S. China trade war is shaping up to be more than just an economic battle.
Even before President Trump ascended to power, he made his intentions towards the Asian superpower clear and explicit, using the previous state heads’ failure to resolve the Chinese fiasco one of his presidential campaign propaganda.
The beginning of the year 2019 saw an exchange of tariff implementation from both countries which led to the matters being shared with the WTO.
Understandably, Trump’s primary concern was the ever expanding trade deficit that reached a new high in the first half of 2018, amounting to a whopping US$ 222.6 billion. One of the ways to combat the deficit is by encouraging domestic consumers to buy American made products as opposed to cost-effective Chinese imports that are ruling the market for quite some time now.
So far, the U.S. has levied tariffs on almost US$ 250 billion imports of Chinese goods and pledged to impose economic sanctions valued at over US$ 325 billion, thereby bringing the U.S. in an advantageous position in the ongoing fight for supremacy.
Since current Chinese imports from U.S. are a small percentage of the total on the U.S. side, US$ 120 billion to be precise, China must devise a strategy to recover from sanctions and strengthen its position in the trade war.
In addition to the violation of intellectual property, China has also been accused of assisting Chinese companies through its intelligence in stealing company secrets. U.S. Senator Mark Warner particularly targeted Chinese giant Huawei, calling its business policies and trade strategies a threat to U.S. national security. In his latest move, President Trump went ahead and blacklisted the Telecommunications baron.
China, in turn, is attempting for everyone to see this fiasco from a completely different viewpoint. In the Conference on Dialogue of Asian Civilizations held in Beijing, Chinese President Xi Jinping denounced the racial supremacy, calling it stupid.
“There is no clash between different civilizations, [we] just need to have the eye to appreciate the beauty in all civilizations,” he said.
Amidst the chaos, latest reports for the month of April show weaker retail sales and industrial production for both countries. Economists, on the other hand, are worried about the long term implications of the war, resulting in impacting countries that are dependent on trade, including Singapore, Malaysia, Japan and Mexico.
Despite his promises to resolve the issues, President Trump’s U-turn in the expected truce only suggests that this is going to be an ongoing battle. While China is trying to stimulate its economy with regular injections of credit, US are trying to cut down on the interest rates by requesting the Federal bank to act in favor of the US economy.
Trade war impact – An overview –
- 5700+ Chinese goods get a hit by the tariff increase including wine, liquefied gas and garments
- Three industries that get the major hit by the high tariffs are agriculture, technology and automobiles
- Steel industry to be impacted as well
Impact on Countries –
As the economic superpowers slug it out on global platform, developing countries with rising economies are finding ways to prepare themselves for the aftermath. India particularly fears China might start flooding Indian market with excess steel it can’t sell in US markets.
In contrast, United Nations indicates that India could be one of the few companies to ‘benefit’ from the ongoing fiasco between US and China. Projected to gain over 3.5% in exports, India joins a handful of Asian countries that also include Philippines (3.2%) and Vietnam (5%).
Others to gain from the trade tussle are Japan and Canada with US$ 20 billion each with EU’s export sharing estimated to grow by US$ 70 billion.
Impact on Consumer –
Overall, an average U.S. consumer will be far less impacted by the trade war as so far, Trump administration has avoided tariff imposition on consumer goods. However, with automobile parts being an exception, increased rates of vehicle production by US manufacturers will eventually burn a hole in consumer’s pocket.
Similarly, as the highest consumer of electric cars in the world, Chinese consumer will suffer from the increased tariffs as companies like Tesla will suffer the most, if tensions flare up further.
Who will win the trade war?
It is tough to predict who will emerge victorious in this war of tariffs as both countries are trying their best to not only alleviate the effects of the squabble, but also find a forum to arrive at an agreement.
The world waits with bated breath as the two leaders are set to meet in G20 summit in Japan next month. As opposed to what both leaders are projecting it to be, a fight for a new, improved world, this clash could just as well be an onset of another recession. Both U.S. and China have a lot at stake and the recent blacklisting of Huawei has not gone down well with the Chinese administration. If the war does not end on a peaceful note, the global economy may be in for a bit of a roller coaster ride.