USA vs China – Trade war
Hi everyone and welcome to my blog! Here I will be discussing the ongoing trade war between the USA and China, as well as the possible consequences and impact it might have to the world and international business. I will be informing you each week about what is going on in the matter.
The reason behind choosing this topic is that it raised a lot of thoughts in me. I am interested in doing e-commerce in the future, and it happens to be strongly related to the trade between these two countries. Naturally, the threat of the trade war and the raising tariffs have made me nervous about whether or not the business I have been planning is still worthwhile. Because of this, I wanted to learn more about this situation.
So, what is this all about? I will summarize the basics of this trade war so that even people who have not been following the topic will understand what is going on. All of you who have been following the topic, please feel free to discuss your feelings about it in the comments below.
Where It Began…
In 2018, the US imposed tariffs on multiple different products imported from China, including aluminum, washing machines and solar panels. A goal of president Donald Trump was to reduce a trade deficit that US has with China. There was also another reason for raising the tariffs; it was a statement from the US to China because US accuses China of intellectual property theft from American companies. American companies were said to have been forced to give their technology to the Chinese partners for the rights to do business in China. China, of course having its own strong view of things, was not happy about these accusations, denied them, and in return, accused US of starting a huge trade war.
The Exchange of Tariffs – Past and Future
After this point, the trade war has been an endless battle in which both countries wait for the other to give up. Both countries have raised tariffs four times on increased amounts of goods, and there are plans for more. China has put tariffs on multiple agricultural goods such as soybeans and meat, and the US has tariffed wide range of goods from railway equipment to consumer items like purses. Negotiations have not given fruit to any actual conclusion as the leaders of the countries have very different world view. Neither country wants to surrender, and this trade war has become a power struggle between two economical giants. The next picture shows the progress of the trade war in the tariff addition perspective, and also shows how valuable these tariffs are:
As the picture shows, both countries started out evenly with their tariffs, but the US has been way more offensive later on. Like I mentioned before, more tariffs have been planned; Trump has apparently said that he is planning tariffs on 325 billion dollars of Chinese products. Both countries have also planned to impose more tariffs on December. For the US, this would mean that tariffs would be applied to nearly every product imported from China. On top of that, the previous tariffs of 25% set by the US on 250 billion dollars of Chinese goods are supposedly rising to 30% on October 1st.
The Future
As I mentioned, both countries have planned for more tariffs in the future, but soon there is something Trump needs to move his attention to, and it is something China is potentially waiting for as well. The presidential election is closing in, and China could be eagerly waiting for two things: Trump to make more pleasing deal when his election campaign starts running, or someone else to replace Trump, in hopes for better negotiation conditions. Would this be the case though? First of all, Trump has warned China about waiting for the election and promised that if he wins the election, “it will be the toughest deal anybody has ever had to make from the standpoint of China.” The risk of everything becoming even worse is something China is seemingly willing to take, even though Trump does have a cluster of supporters willing to vote for him.
The question is, would things get better for China even if Trump loses. There are mixed opinions, and it depends entirely who would win the election. Many of the candidates, such as the former governor of Colorado John Hickenlooper, speak for free-trade and are opposed to the trade war, which would most likely mean more favorable deal for China. But there are many that have been critiquing free trade for putting US workers at a disadvantage, and also the supposed intellectual property theft of China. Bernie Sanders is one of these candidates, and if he, or anyone with the same ideals wins the elections, they will most likely follow Donald Trump’s policy on imposing tariffs.
Effects on the World
So, what effects could the trade war have on the world. There has been a lot of pondering about whether or not the next recession will start because of it, and it seems like the risk of it gets higher the longer the trade dispute continues, and it does not seem to be ending anytime soon. An analysts of Morgan Stanley, Robin Xing Ziqiang, says the following: “If the US raises tariffs on all imports from China to 25 per cent and China makes a matching response, with these measures staying in place for four to six months, we believe that the global economy will be in recession in six to nine months.” On the other hand, there are analysts who believe that the happenings might not be significant enough and the recession might be avoided. Either way, a power struggle of this magnitude between such major economies has had and will have effects all over the world.
Due to the multitude of tariffs, increasing prices are inevitable in the US and China, and now that even consumer products are targeted, the effects are showing even more on people’s everyday life. As a result, there is a decline in demand, and the economic growth of both China and the US is slowing fast. How about the rest of the world? The market of the whole world is declining; the growth and global business investment are affected negatively. The lower demand will also disrupt global supply chains, and thus affect the countries that play an important role in such supply chains. While Brexit is the main concern in the Europe right now, the effects of the trade war cannot be unnoticed since Europe is very dependent on trade.
It is not all bad though. Both US and China are forced to look for alternative supply chains, and this could benefit multiple countries. For example, there are many other countries in South-East Asia that have low labor costs, sizeable workforce, and strong supply chain. Europe is another one that could benefit from the scuffle between the economic giants: according to UNCTAD, Europe could catch 70 billion dollars thanks to the trade war, it forming from 50 billion of Chinese exports to the US and 20 billion from the US exports to China.
Conclusion
The trade war between the US and China feels like a timebomb that could break the world economy at any moment, having everyone on their toes waiting for what happens next. I can’t help but wonder how far these countries are willing to take this; the consequences could be massive, some even fearing a bigger economic crisis than in 2008, yet neither participant is showing any sign of coming to an agreement. It is also baffling how even the WTO seems powerless even though the whole organization was made for this. Did I find an answer to my question about the effects on my ecommerce idea? Honestly, if the US puts tariffs on every single consumer good to the point that even items like coffee mugs are more expensive to import, then yes, the business idea would suffer from this trade war. However, as long as there are goods that do not have increased tariffs, there is a possibility to avoid the threat they pose. Of course, if the demand declines a lot like it’s been predicted, all businesses will sadly be affected by that. I do look forward to following the topic and wish the countries would come to an agreement, rather sooner than later.
Sources
https://www.youtube.com/watch?v=SoXl_OBcczM
https://www.bbc.com/news/business-45899310
https://www.nbcnews.com/news/world/china-s-trade-u-s-shrinks-trump-tariff-war-worsens-n1051161
https://www.scmp.com/economy/china-economy/article/3027807/donald-trump-warns-china-faces-toughest-trade-war-deal-ever
https://www.scmp.com/comment/opinion/article/3015984/will-us-policy-china-change-if-trump-loses-2020-presidential
https://www.scmp.com/economy/china-economy/article/3024415/us-china-trade-war-escalation-seen-moving-global-recession
https://archive.intereconomics.eu/year/2019/3/the-us-china-trade-war-and-its-implications-for-europe/
https://www.spglobal.com/en/research-insights/articles/the-u-s-china-trade-war-the-global-economic-fallout
https://www.scmp.com/news/china/diplomacy/article/2175925/wto-paralysed-leaders-try-defuse-us-china-trade-war
