A possible trade war between the United States and China has distressed businesses across the globe. The U.S. President Donald Trump is living up to his 2016 pre-election promises of ‘America first’ and preventing China from indulging in unfair trade practices by imposing heavy tariffs on the import of Chinese goods, thereby inviting a reactive action from China.
Simply put, a ‘trade war’ may be called a dispute between trading nations arising out of clash of interests, wherein a country imposes tariffs on certain imports in order to restrict trade and in response, the country or countries affected by those tariffs impose their own fees on imports. ‘Tariffs’ are basically fees or taxes weighed on certain goods when imported into a country.
One doesn’t need to be a rocket scientist to understand why the Trump government decided to go ahead with this. As of 2018, the United States has a trade deficit of $500 billion a year. Trade deficit represents an outflow of domestic currency to foreign markets. Also, China has been pandering in cyber and intellectual property theft of U.S. technologies, which is being evaluated by Trump’s administration at another $300 billion of loss to the U.S. economy. President Trump blames China for unfair trade practices that drive the trade deficit, along with barriers to market access, forced technology transfers and intellectual property theft. On the outset, this move by President Trump to slap 25 percent tariffs on $50 billion to $60 billion on Chinese exports to the U.S., including aerospace, information and communication technology, and machinery apparently seems to be to restrict China from demanding technology handovers from U.S. companies in return for access to China’s market. There are two rudimentary issues between the U.S. and China trade relations that have resulted in the ongoing standoff: 1)High U.S. trade deficit accumulating out of unfair trade practices by China and 2)Cyber and intellectual property theft of U.S. technologies by China.
The red dragon retaliated by matching Trump’s proposed tariffs with tariffs worth $50 billion on a wide range of U.S. products, including scrap aluminum, soybeans, small aircraft, pork, apples and sparkling wine. It is far from over, as Trump has promised more tariffs on about 1,300 Chinese products. Within hours, China retorted with more tariffs, this time taking aim at Boeing planes, cars and chemicals.
What are the implications of a U.S.- China Trade War? This question begs to be answered. U.S. economists and senators are criticizing Trump’s actions, which have raised fears of a wide-ranging trade war that could impact the American agriculture, manufacturing and technology sectors. In a hard hitting remark, U.S. Senator Ben Sasse said that “Hopefully the President is just blowing off steam again but, if he’s even half-serious, this is nuts. China is guilty of many things, but the President has no actual plan to win right now. He’s threatening to light American agriculture on fire. Let’s absolutely take on Chinese bad behavior, but with a plan that punishes them instead of us. This is the dumbest possible way to do this.” The United States has placed charges on Chinese products that American households routinely purchase. Hence, American consumers are likely to face higher prices on furniture, televisions, shoes, clothes and possibly even iPhones. Mr. Sasse makes a good point considering all the products that China has threatened to place tariffs on so far, it is likely to affect about 2.1 million jobs in U.S. Therefore actions taken by Trump government with the view to put America first seem to be counterproductive when looked upon in its entireness. A trade war could disrupt the current global economic expansion and cripple American businesses that depend on business with China. Furthermore, it could also complicate geopolitical priorities given that the Trump administration has enlisted the help of the Chinese in scheduling significant talks with North Korea next month. A number of foreign companies are caught between China’s industrial ambitions and Washington’s efforts to stop them, including major aerospace companies and carmakers. Tariffs could hurt such companies if the United States and China follow through on their plans.
