WHAT IS THE US AND CHINA TRADE WAR?
The term ‘US and China Trade War’ has been applied to the actions of the United States of America by imposing 185 billion US dollars of tariffs on Chinese goods being imported into the USA. It includes the retaliative action by China of imposing their own tariffs on USA-sourced goods imported into China. This has been followed by a period of negotiations and adjustments to the tariffs which appears to still be ongoing. All issues surrounding these matters can be considered to be under the banner of the ‘US and China Trade War’.
HOW DID IT HAPPEN?
As China had record growth of its economy over the last 2 decades, there developed a huge trade surplus with the United States of America. China was selling the Americans many more times the value of goods than it was buying from them. This situation was the cause of much grievance on the part of the Americans, felt that China was behaving in an unfair manner.
It can be said that President Trump of the United States of America made the first move that initiated this ‘war’ when, in July 2018, he announced tariffs on 185 billion US dollars’ worth of tariffs on Chinese goods being imported into the United States of America. This was not entirely unexpected as he had been threatening to do the same for many months before, as he believed China was acting unfairly in its trading practices. Trump had expressed disapproval of the Chinese trade practices going back as far as his election campaign in 2016. This decision of imposing tariffs was intended to protect jobs and businesses in the USA against the burgeoning competition coming from China, which many deem unfair. The Chinese government took extreme offence to this, and retaliated by imposing tariffs of their own on USA-sourced goods entering China. The net result was that rather than protect the markets it actually hurt businesses and workers in both countries.
WHAT HAPPENED NEXT?
Throughout the rest of 2018 China and the United States of America have been imposing what appear to be ‘tit-for-tat’ tariffs on each other’s goods. Both countries incrementally kept adding more and more of each other’s commodities to the lists. In between there were positive talks between the two counties and some reductions in tariffs on certain items, and even a temporary reprieve for a short while in the early days. However both countries also filed complaints against each other to the World Trade Organisation, and tariffs continued to increase and incorporate an ever wider scope of commodities. Further talks broke down in vain and nothing changed.
At the G20 Summit in Argentina, held in December 2018, the two countries made an agreement not to impose further tariffs for 90 days. Subsequently China resume purchasing USA-grown soya beans which they were boycotting until this time. China subsequently announced that it would ban all variants of fentanyl (a synthetic opioid) in concession to a demand made by the USA.
After the G20 summit in Japan, 2019, an agreement was reached for a ‘ceasefire’ whereby no more tariffs were to be applied by either side. This effectively froze the situation in its present condition for the foreseeable future. As it happens, it would only be a short time before Trump was threatening more tariffs. By August 2019 China announced more tariffs would be put in place on another 75 billion US dollars’ worth of USA-sourced goods. On 1st September USA retaliated by going ahead with planned tariffs that had thought to have been previously put on hold.
On January 15th 2020, both countries finally signed ‘Phase 1’ of a new trade deal which would begin an incremental roll-back on tariffs on both sides. With Phase 1 now becoming a reality, it is yet to be seen whether or not the ‘trade war’ is coming to an end or whether something could cause it to flare up again.
WORLD FINANCIAL IMPACT OF THE CHINA AND US TRADE WAR
We have ascertained that the countries of Chin and the United States of America are greatly affected by this so called ‘trade war’. But they are not the only countries to feel the effects. Looking at the wider picture, the impact of this situation would be felt by almost everyone in any country who routinely relies on Chinese or USA-sourced finished products that contain components from both countries. An example of this would be steel products made in the USA that would normally have used steel sourced from China. The manufacturer of these products would have to make the choice of whether to continue with Chinese steel and meet the cost of the imposed tariffs, or source their steel from elsewhere. In either scenario, the steel would be more expensive to buy than had been the case before the trade war. The extra cost involved in buying the raw material would no doubt be reflected in the price of the finished product. This would affect the final buyer regardless of which country they were in. If the new, revised sale price of the product was deemed excessive by the customer base, they would stop buying the products which would therefore put the viability of the manufacturer’s business itself in jeopardy. The same is true for any country that purchases products from China that have USA-sourced raw materials in them. These would include soya beans and pork products. On the other hand some countries stand to reap benefits if they can take the place of China in supplying raw materials to the USA. President Trump has ordered USA businesses to look elsewhere for goods that they currently source from China.
CASH FLOW AFFECTED BY THE US AND CHINA TRADE WAR
Under the presidency of Donald Trump, the USA has witnessed almost a 90% decrease in cash flow coming in from China. 46.5 billion US dollars’ worth of investment from China in 2016 was down to just 5.4 billion dollars in 2018 and this continues to drop. This is reflective of the state of the economic relationship between the two countries and the atmosphere of distrust on both sides.
