What exactly is US-China trade war?
Before we begin to talk about US-China trade war, let us first know what exactly is a trade war.
In simple words, a trade war is a war where the countries attack one another’s trade with taxes and quotas. This basically means that the items coming from abroad into the country will be taxed more, making them expensive. In turn, the people are left with no other choice than to buy cheaper local products which result in a boost of the country’s economy.
One country will raise tariffs, a type of tax, causing the other to respond, in a tit-for-tat escalation. This can hurt other nations’ economies and lead to rising political tensions between them.
The President of the USA, Donald Trump, has decided to do just that! It all started in March last year when he imposed three rounds of tariffs on more than $250bn worth of Chinese goods.
However, China was not the one to keep quiet and hit back with tariffs on $110bn of US goods, accusing the US of starting “the largest trade war in economic history”.
China has targeted products including chemicals, coal and medical equipment with levies that range from 5% to 25%.
This to and fro of imposing tariffs increased even more when US demanded China to reduce its $375 billion trade deficit with the US and also give more access to American goods in Chinese markets.
This comes in after the US administration claimed that the country has been facing trade deficits, especially with China. Not only that, but Trump also wants to cut the trade deficit with China whom he has accused of unfair trade practices.
Although, both US and China agreed for a truce in December 2018 and both sides began to talk.
But on 10th May this year, US raised tariffs from 10 percent to 25 percent on $200 billion of Chinese goods after Washington and Beijing failed to reach a long-sought trade deal despite days of intense talks.
Trump also announced that he plans to impose a 25% tariff on $325bn of other Chinese goods.
China again vowed to fight back, and officially did so on Monday(13th May), announcing it would increase its own tariffs on $60 billion of American products. Around 5,000 items will now have duties increased up to 25 percent; those penalties will go into effect on June 1, according to China’s finance ministry.
Trump’s protectionist policy
This particular method of boosting one’s country’s industry and shielding it from foreign competition by using restrictions like tariffs is called Protectionism. And by the looks of it, Donald Trump seems to be a devoted follower of Protectionism!
During his campaign trail, Donald Trump had made a big point about cutting the country’s trade deficits.
Trump continues to proclaim that tariffs are “paid to the United States by China” and that they result in “billions” of dollars pouring into the US Treasury.
However, critics and experts are of the opinion that this trade war might not benefit US the way Trump thinks it would and he has misguided strategic and personal views on tariffs. For instance, the critics have pointed out that most of the steel in US comes from Canada and the EU which are staunch US allies.
Theoretically, taxing the foreign steel and aluminium will make people buy local steel and aluminium which would obviously boost the US steel and aluminium industries. But that will also increase the prices of steel and aluminium in US because of the high demand for it in the local markets.
Moreover, US companies that need raw materials such as car and aeroplane makers, will eventually have to increase the price of their finished goods which in turn would affect the customers.
The more expensive consumer goods, which would result from the US proceeding with its threat to raise tariffs on imports from China across the board, would erode the living standards of less affluent Americans, raise the cost of phones, laptops, gaming consoles and other tech stuff, irritating the youth.
Also, not just the car price, but plane tickets or even the price of a beer can could go high.
So, unless the trade war ends soon — an unlikely prospect — the world economy will be held hostage by China’s misconduct and Trump’s misguided views.
This article was originally published on Revolutionary Entrepreneur.
