Last month, U.S. President Donald Trump announced tariffs on steel and aluminum. These metals are used in the production of vehicles, beverage containers and several other common items, meaning that encouraging the use of aluminum and steel produced domestically could be a good thing for domestic producers of these metals.These metals are currently imported from China, leading to fears that an American tariff would lead to reactionary measures from China leading to a trade war.
The first of these actions occurred early this week when the Chinese government announced tariffs on American-produced pork, nuts, sparkling wine and fruit, according to Marketplace APM. Analysts speaking with MarketPlace noted that this is not likely to pose a significant setback to the American economy on its own, but that it suggested an increase in countries practicing economically protectionist strategies that may lead to setbacks in global trade, especially if more countries follow suit in the near future. Regardless of potential trade impact, fear over these exchanges have already led to drops in the stock market, according to MarketWatch.
While the actions taken by the United States and China do not yet constitute a full-on trade war, many economists are worried about continued escalation.
Trade wars have been largely prevented for the last several decades by the World Trade Organization, a multi-national organization that polices trans-national commerce. The WTO has prevented trade wars by effectively outlawing tariffs, except in the interest of national security. When a country declares tariffs in the interest of national security as the United States has done, the WTO can determine whether or not the tariff is protected under their rules, but this can take months.
Further, while China has filed with the WTO against the United States, they claim that the tariffs that they have enacted against the United States are protected under WTO rules as a sort of economic self-defense.
Late last month, President Trump also filed against China with the WTO claiming that China was violating WTO regulations through technology licensing that he says unfairly requires companies operating in China to give information to Chinese state-owned agencies. Other countries have also complained in the past that China’s state-ownership of companies allows them to navigate around WTO regulations, which the International Monetary Fund, another multi-national trade organization, according to Bloomberg, These issues may lead other countries to join in the trade war on either side, as America may lose valuable protections if President Trump goes forward with renegotiating the North American Free Trade Agreement, according to MarketWatch.
