US-China Trade War

When the two biggest economies in the world are engaged in a fierce trade war, what happens to the global economy? A weakened world GDP growth of 0.7 percent is the result. While this might not seem a lot, the consequences are dire. 

Origins of the war:

While campaigning as a candidate in 2016, Donald Trump frequently indicated that America’s trade with China was the primary driver in causing the loss of U.S. manufacturing jobs and intellectual property (IP). He accused China for damaging US business and workers by making its exports more competitive globally by manipulating its currency. He continued to add that the US would no longer allow itself to be “raped by China.” With that being said, he developed his campaign manifesto around cutting a better deal with China to promote employment in the country and enable American workers to compete globally. Accusing China for the committing the greatest theft in history, Trump crafted a four-part strategy to negotiate a better deal with China: “declare China a currency manipulator; confront China on IP and forced technology transfer concerns; end China’s use of export subsidies and lax labor and environmental standards; and lower America’s corporate tax rate to make U.S. manufacturing more competitive.”

Official beginning of the trade war:

Upon getting elected, on April 7, 2017, Donald Trump formally met with Chinese leader Xí Jìnpíng, setting up a 100-day action plan to address the trade differences. A month later, both countries agreed to a trade agreement. China agreed to give more access to some of its key industries to US companies, and the US authorized bilateral trade access to China. Following the agreement, follow-up dialogues between the nations faded away, with no formal agreement or press conference ending the 100-day settlement. 

Due to lack of progress, Trump launched the trade war and relentlessly pressured China for more reforms that govern its economic system while China plainly resisted the pressure. Trump began enforcing tariffs on goods imported from China in July 2018, while China retaliated by imposing import duties on US products as well. A higher import duty for both countries essentially meant that consumers in both the countries had to pay a higher import tax.

Timeline of the US-China trade war
Source: Statista

Implications of the trade war:

The trade war is regarded as a lose-lose war for both nations as it managed to harm and compromise both the nation’s economy. The most prominent implication of the trade war is the sharp and steady decline in bilateral trade between the two countries. The imposition of tariffs has translated into higher prices for consumers in both countries.

In the US, the tariff imposition on Chinese products has led to higher costs of Chinese products. This cost is being passed down to US consumers in the form of higher prices. However, Chinese firms are trying to absorb the increase in sort by reducing the prices of their exports. A study conducted by the United Nations Conference on Trade and Development (UNCTAD) concludes that the US tariffs imposed have caused a 25% export loss, which is equivalent to $40 Billion USD a year. The trade war has cost the US economy approximately $316 Billion USD, 300,000 jobs, and about 0.3% of its GDP. Likewise, the implications of the trade war in China have also been dire. China has reported slow growth in its GDP in nearly three decades ever since the beginning of the trade war.

Joe Biden’s presidency and its impact on the US-China trade war?

A substantial amount of time and resources was expended by the Trump administration on pilling up pressure on China. Although its early days ,it will be interesting to see how this complicated relationship will be dealt by Biden’s administration. Joe Biden states that no immediate action will be taken to lift up the tariffs imposed by the previous administration on imported Chinese products; hinting that the trade war is likely to continue. Currently, China is behind schedule for its phase one of its Economic and Trade Agreement. Biden noted no further step would be taken forward until a full review is conducting for the existing phase one trade deal.

Written by : Shreya Sharma