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Student Speak

US-China Trade War_ A Tooth for a Tooth with Tariffs

Posted on August 28, 2019 by Mohika Mudgal (3rd Year, BSc.(Hons) Economics)  | Archives | Student Speak

A million different wars are fought all over the world and some even cost lives. Here’s the story of a war that doesn’t. It kills, but only employment and businesses. 

 

As I follow the news, I can’t help but wonder. Is China destined to be an economic superpower in the coming decade? Would Yuan be the next dollar?

 

The United States of America imported $3.1 trillion of goods and services while being able to export only about $2.5 trillion last year. The American economy faced the brunt of a trade deficit of $55.5 billion as of May 2019, the largest in the last five months. As facts go, the major chunk of USA imports include components manufactured by American companies operating in China, keeping China on the receiving side of money. While China has a large inflow of foreign investment and technology, the USA has an extremely low export percentage to China, making the trade uneven. To top this, Mr Donald Trump, the President of the United States of America has accused China of stealing intellectual property and unfair transfers of technology. 

 

Now, let’s talk about tariffs. Tariffs aid countries to expand and boost home businesses. This is why commodities are cheaper in the country of origin than if you were to import them. The USA has already imposed three rounds of tariffs on Chinese products like steel, aluminium and services, totalling to $250 billion. As a response, China retaliated by imposing duties on American agricultural products worth $110 billion. But what good would numbers be? 

 

If the USA introduces another set of tariffs in order to keep its power, it would essentially make all Chinese goods and services more expensive than local American products. Small businesses and industries in America could benefit from this. The idea is to reduce the existing trade deficit by buying less from China than the USA sells to it.

 

However, how does the animal kingdom get affected by a battle between two lions? Why should we care? Well, for starters, according to the International Monetary Fund, it would shave off 0.5% of global growth by 2020. The effects of imposing duties ripple like waves on a shore towards other nations, especially those like Malaysia and South Korea that help produce parts of a commodity which China assembles and sells, thus, affecting jobs worldwide. On the other side of the coin, it would benefit countries who can fill up the supply gap and provide cheaper ways of production like Bangladesh’s cotton industry, stitchers in Vietnam and toy manufacturers in Mexico. As for us, we must grab an opportunity when it comes our way. The flow of investments is predicted to be diverted to India. 

 

While trade negotiations are revolutionary, this one is arduous. As the United States tries to slow down the rise of the Chinese economic empire, the power struggle between the two nations continues. China aspires to be the master of technology and Artificial Intelligence with its project Made in China 2025. And the US just won’t have it. It doesn’t change the fact that the global economic order would be in shambles and everybody would get poorer. 

 

An economic crash could potentially be on the horizon. And if (when?) the markets crash, after about 9 years of not crashing, I hope we’re ready to face the brunt!