Trade War Between US-China: Why Should You Care?
Nobody wins in a trade war, everybody losses.
By definition, a trade war is when a nation imposes tariffs or quotas on imports and foreign countries retaliate with similar forms of trade protectionism. As it escalates, a trade war reduces international trade. It starts when a nation attempts to protect a domestic industry and create jobs. In the short run, it may work. But in the long run, a trade war costs jobs and depresses economic growth for all countries involved. It also triggers inflation when tariffs increase the prices of imports.
Source: Shu.Edu by Patricia Zanini-Graca
The last major trade war occurred with the 1930 Smoot-Hawley Tariff. It increased 900 import tariffs by an average of 40 to 48 percent. Its purpose was to support U.S. farmers who had been ravaged by the Dust Bowl. But it also raised food prices for Americans who were already suffering from the Great Depression. Other countries retaliated with their own tariffs. It forced global trade down by 65 percent, worsened the depression, and contributed to the start of World War II.
Source: The Balance - KIMBERLY AMADEO
Source: The Barrons
According to our sources above, the trade deficit between the U.S. and China has gradually widened in recent years. In 2017, the U.S. imported $504 billion worth of goods from China, while China imported $130 billion from the U.S. President Trump argues that the growing deficit shows how China is unfairly restricting U.S. exports while boosting domestic producers. A trade deficit isn’t a bad thing in and of itself, economists argue. But there is a robust debate over whether the China is “taking advantage” of the U.S. with its trade laws and subsidies for domestic companies.
Trump was creating a lot of big changes in the International Trade Arena. The United States has also withdrawn quite a lot of trade agreements, to name a few with China, NAFTA, and TPP. Main reason why Trump was doing this is so that he can make America great again. He wants to bring jobs back to the American people instead of outsourcing them to other countries. To do this, he imposed tariffs to as much as 25% to a lot of products exported to the US.
Why should you care?
Take a good look at the infographics below. This shows the raw materials and products being exported by the US to China and vice versa. All of these products are now subject to 25% tariffs. How it affects us? The Iphones that you are using now are manufactured in China and is then brought to the US for selling. Some of the parts of your automobiles are made and assembled in China. With the additional tariffs, we can expect prices of these commodities to spike from 25-50%.
Trade war is not as easy to win as what Trump says, it's much more complicated than just focusing on the trade surplus. And clearly, nobody wins in a Trade War. It might look good in the short term for the US, but in the long run, everybody losses. The effect will not only be felt in the US and China, but the whole world. And if this continues, we can expect a substantial drop of the international GNP.
Cheers,
Kaizen