China and the USA are two of the biggest powers of world as well as greatest economies undergoing trade war. However china has now larger GDP than USA in terms of PPP, but USA leads in nominal GDP.
Both of these nations was largest exporter and importer respectively of the world. So what lead these great economies undergo such trade war, such economic conflicts since 2018.
Was it unfair trade practises, was it skyrocketing trade deficit or was it has to do something with past.
We will know all of this in this article, year by year progression in simple words, how it started, and did it ever end. Let’s find out.
Let’s get started!!!
What will we learn:
- WHAT IS A TRADE WAR?
- WHAT IS TARIFF?
- WAS TRUMP WRONG?
- IMPACT ON INDIA
- IMPACT ON WORLD
- FREQUENTLY ASKED QUESTION
Capitalist USA and Communist China have been trading partners for quite a long now. With the passage of time china’s export to USA increased several folds while US export didn’t grew in such rate.
Eventually, in 2001 China joined World Trade organisation and was awarded most favourable nation status, but the administration accused china of failing to comply with global trade rules.
Secondly, they were also accused to steal their intellectual properties which was costing them a billion dollars a years.
Another prominent reason was the deepening gap between the trade deficit of USA and China.
And when trump became president of united states it became crystal clear he is going to take some steps to tackle this issue, doesn’t matter right or wrong and he did that with start of 2018.
USA was fighting protectionism on the other hand china was indulging anti-American sentiment among its people.
WHAT IS A TRADE WAR?
When countries impose addition tariffs in products from other country in order to increase sale of products from their own country give rise to trade war.
It could be because of protectionism.
In this situation country retaliate too against a country who imposed tax barriers such as tariffs and quotas. It results in escalation of others tensions which can effect globally.
Also learn about WORLD WAR 2
WHAT IS TARIFF?
Tariff is a tax imposed on imported goods by government of country. In easy words it makes foreign products more expensive and therefore appear less desirable to consumers which helps domestic market to boon.
Custom officers collect Tariff
START OF TRADE WAR
- American president DONALD TRUMP stated his government will impose a 25% tariff on steel import and 10% tariff on aluminium imports (approx 34 billion on chinese products such as aircraft parts, flat television medical devices etc.) in return several warnings are to be heard to retaliate this step by imposing tariffs on US exports if they’re affected.
- TRUMP did so to boost his local companies as their domestic industry is not showing much profit.
- TRUMP also targeted NATO as USA are the one contributing most to it.
Secondly, it is mentioned in some reports that America is soon to go in mass level reconstruction which will require enormous amount of above mentioned raw products and if their domestic industry would not be capable enough, business would be grabbed by foreign countries.
Another aspect of TRADE WAR
Another aspect to keep in mind is that, where in one hand their steel and aluminium manufacturing factories would be benefited. Other industries like automobile industries would see a dip as now price for their raw products would be comparatively more of what they are paying now.
America and China do business in humongous level of nearly 600 billion. Out of which US had to carry a trade deficit of nearly 370 billion.
President Trump also accused China of theft of their intellectual property in large scale and reaction of Chinese government was awaited.( if china decided to retaliate, it could affect USA by imposing tariffs on electronic products, prominent being Apple and Qualcomm).
Results of Trumps action was a huge stock market crash and WTO CHIEF Roberto Azevedo warned him not to lit up trade war since 1930s as it could give rise to great depression(1929-1941) again.
- As back then, when USA underwent depression.
- Same tariff idea was implemented as SMOOT-HAWLEY TARIFF act which worsened the situation 10 folds.
ALSO LEARN ABOUT : INDIA PAKISTAN WARS
SERIES OF TARIFF HIKES BETWEEN USA AND CHINA
- First USA started with imposing 34 billion dollar worth products on chinese goods which mainly included steel and aluminium, solar panels etc.
- CHINA retaliated with tariff of 25% which is again 34 billion dollar. It includes soya bean, marine equipment etc.
- To which USA retaliated again and increased tariff to about 50 billion.
- This was further escalated when US introduced an additional 10% to cover 200 billion worth chinese product goods.
- To which China retaliated by imposing tariffs on import from USA worth additional 60 billion USA dollars
- To which USA imposed 15% tariff on remaining 300 million worth products from china.
This was how tariff war continued.
ALSO LEARN ABOUT : INDO CHINA WAR
WAS TRUMP WRONG?
There is no denying the fact that USA is struggling with gigantic tariff deficit, his this idea of tariff war would most likely negatively affect his own and his neighbouring countries like Canada and Mexico.
- Impact on China will most likely be minimal as they import products worth 130 billion from USA on the contrary USA import 506 billions.
- See also : WAR MOVIES
IMPACT ON INDIA
- India and USA too do business of large scale. Over 2001-2011 indian exports jumped five fold and India enjoyed heavy trade surplus( growth was measured nearly 468%) though years after that were highly disappointing due to such policies, which brings India in scanner of US government to increase tariff
- However India cant retaliate as china and European union as most of India’s export are mostly to USA and depends heavily on them.
- Trade war would affect Generalised system of preferences.
- Tightening of visa norms would take place.
- Hike in import duty on steel and aluminium items will be seen.
- India gained a little profit in field of Chemicals, metal and ore, electric machinery, agricultural products, furniture, textiles etc.
IMPACT ON WORLD
Trump imposed tariffs so that his domestic industries will be benefited but that happened negligibly as most of product which were to be exported is also facing same tariff hike from other countries.
- People are getting the same products in a hiked price which is resulting in dipping GDP.
- However, some countries like Taiwan, Mexico and countries of European union have gained more profits comparatively.
- Countries like Korea, Canada and India have gained profit too but are comparatively smaller ranging from 0.9 billion to 1.5 billion US dollar.
THE UNITED NATION REPORT
- A study by united nation trade and investment body came out which concluded certain points and they are mentioned below in simple points:
- This trade war haven’t benefited either country in spite caused loss. There was a sharp decline of 25% of chinese products to USA and vice versa.
- Consumers have to suffer high prices of goods due to which demand declined.
- It created a diversion that included increased imports from other countries who are not directly linked to it.
This trade war is not only limited to two countries but has affect almost all major economies mostly in a negative manner.
However, despite all these substantial tariffs imposed by US government China is able to maintain their 75% of taxes to US, all thanks to the lack of competitiveness.
Not only this Chinese government, have also started reducing their prices of products which they export and it helped them absorbing cost of tariffs.
But one question arises, can this trade war turn something more than it( as history records tells us) or will this matter resolve with time(as philosophy teaches us). We can find it out, by waiting for it.
LEARN AND GROW…