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Trade war between U.S and China

Introduction: 

A trade war is an economic conflict in which countries impose import restrictions on each other in order to harm each other’s trade. Potential trade war strategies include not only tariffs, but also clamping down on foreign investments, devaluing domestic currencies, scaling back purchases of treasuries, and/or implementing subsidies for domestic industries, and quotas.

The ongoing trade war between two superpowers has resulted in the imposition of duties and taxes on the traded goods from one another. During his election campaign, the president Donald Trump promised to do something about the unfair practices and broken international system of China, and just after taking his seat as  US President Donald Trump introduced new tariffs and duties to the imports from China to make the trade deficit which existed in books of U.S for a long time.

This whole process started in January 2018 when the U.S imposed a tariff on solar panel imports, most of which are manufactured in China. On July 6, the U.S. specifically targeted China by imposing 25% tariffs on $34 billion of imported Chinese goods as part of Trump's tariffs policy, which then led China to respond with similarly sized tariffs on U.S. products. A tariff on an additional $16 billion of Chinese imports was added in mid-August, with China responding proportionately. A further tariff on $200 billion of Chinese goods went into effect on September 24, to which China responded with tariffs on $60 billion of US goods.

Here the magnitude of money involved seems in favour of U.S but losing the market as huge as China in addition to the trade makes it clear about the skewness of benefits.

In the news:

The Trump administration also said that because Beijing allows you to trade only when you agree to transfer technology to their Chinese business partners in return for access to the country’s 1.4 billion citizens. Tariffs were necessary to protect the intellectual property of U.S. businesses, and to help reduce the U.S. trade deficit with China. The U.S. is taking into consideration Section 301 of the Trade Act of 1974 to shield its duties. Claiming that China is engaging in unfair practices and theft of intellectual property which gives it the authority to impose such duties and taxes on a trading partner.

A statement by Mr Mattis, U.S. Defence Secretary goes like-" We will not be intimidated, and we will not stand down, for we cannot accept [China's] militarization of the South China Sea or any coercion in this region,". The statement by Mr Mattis should not be seen in isolation. It is believed by many experts that this is something U.S.’s aggressive strategy on China. It is also expected that the vice president of U.S.A. will further condemn China restrictions and polarisation of the South China Sea for trade.

China's One Belt One Road programme and it is yet another arena where you can expect the battle for influence between the US and China to play out. The 'One Belt, One Road' (OBOR) initiative is a foreign policy and economic strategy of the People's Republic of China. The term derives from the overland 'Silk Road Economic Belt' and the '21st-Century Maritime Silk Road', concepts introduced by PRC President Xi Jinping in 2013. These are the two major axes along which China proposes to economically link Europe to China through countries across Eurasia and the Indian Ocean.

While the U.S sees the trade war as an opportunity to right the wrongs it believes it has suffered at the hands of China for decades of unfair trade, Beijing sees the trade war as the Trump administration's attempts at curbing China's rise.

Opinions and statements:

  • "I was in China a few weeks ago, and I do believe if the path remains the same in the next few weeks, we're going to have a full-fledged trade war," says Larry Fink, the CEO of the largest asset manager in the world. “Let’s hope I'm wrong," he adds
  • Although the Chinese ambassador said that the U.S and China relations are completing 30 years now, and he holds faith in the people of U.S and China that they can save the relation between these superpowers.  “When our relations are at a low ebb, it is always our people who will firmly support the bonds and friendship, and turn the tide of the China-US relations,”  said at an event held in Washington by the China General Chamber of Commerce-USA, In a speech that made no direct mention of Trump or his government, Cui expressed confidence in the capacity of people-to-people friendship, rather than political wrestling, to carry the US-China relationship forward.

Therefore, now everyone is gushing over the meeting of these leaders at the G20 summit to decide the fate of trade between these two countries.

Impact: China is a country producing goods basket which contains all sort of goods whether it is high -Tech goods or low skilled goods. The kind of competitive goods it produces will impact industries and producers all over.

  • Tourism Fewer Chinese business executives, tourists and students are visiting the United States, a sign that the trade war between Washington and Beijing might spread in unpredictable and costly ways. Already, 102,000 fewer Chinese people received business, leisure :and educational visas from May through September of this year compared with the same period last year, a 13 percent drop, according to State Department statistics. 
  • Stock market: The countries are the world’s largest trading partners and on war and neither side is backing down. So the people who are being affected are the producers and consumers of these goods, as now both of them have to pay more for the same goods. But because of the trade war, there are huge drops in the stock market all over.
  • Goods and services: As talked earlier in this article the electronics are the centers of China's economy and if they were taxed heavily then there is a possibility that the brunts will be borne by the Americans indeed in terms of expensive products. China imports large of amount of soybean from America, but since the tariffs have been increased and China cannot produce enough for its consumption.
  • Others: The corporates are worried about the impact of a trade war in dropping profits. There are over 25% tariff and imports from automobiles, fruits and other products. There has been a stark fall in the merchandise trade between the two countries.
  • India: As far as the impact on India is concerned the effect remain depended on factors. If we talk about the falling crude oil prices, it may benefit India but if the global trade isn't doing well the firms and companies using the crude oil may not benefit with the falling global trend and trade. India could be a more competitive option for the U.S but as compared to China our goods are not as diverse as chinas.

Conclusion: In trade wars there are no winners, considering what sort of huge marketplace China is, the loss seems to be more skewed towards the U.S and we are hoping that the trade wars doesn’t have many spillovers to India. 

Links for further review: 

 


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