US- CHINA Trade War. By- Mohit Singh.
The US-CHINA Trade War Which has Grown More Intense and is Predicted to Intensify Over a Period of Time, and Who is going to Finally Benefit From This.
By Trade War what do we mean?: Trade war is a situation where country imposes tariffs which means imposing tax on goods that are imported making it more expensive thereby restricting trade and then there is a similar retaliatory move by the opponent country. Tariff also serves as a source of direct revenue for the government.
How do Countries get into this Trade War: .To understand this just suppose that there are two countries, Country 1 and Country 2. Now Country 1 imposes high tariffs on imports from Country 2 which Country 2 finds unreasonable. Due to this Country 2 in retaliation imposes high tariffs on imports from Country 1, thus leading these two countries into Trade War. The reasons for Trade War to erupt are many but one primary reason is Trade War is one potential result of protectionism. Basically if a country feels that due to the imports or investments from another country which could possibly threaten it's own industries then high tariffs are imposed and then in retaliation the opponent country does the same leading to a Trade War. Second reason is when one country finds another country's trading practices to be unfair or against ethical way of trading. The other reason is simply a misunderstanding among countries, as a wrong perception can also lead to trade wars among countries, and when there is a Trade War going on between two countries then it can affect other countries as well, in both ways positive and negative as we are living in an age of Globalisation, where every country is connected to each other especially in terms of Economy, so an activity or series of activities of a country can affect others too and if they are USA and China then it is bound to render shockwaves all around the globe.
US-China Trade War and why is it making Headlines across the globe: There were many small events taking place which were gradually fuelling Trade War but the major turning point was an official statement released by Donald Trump in which he clearly declared that, Trump administration will impose an appalling 25% tariff on steel imports and a 10% tariff on aluminium imports.
This was terrifying for all the countries exporting steel to USA. According to sources, Trump is of the opinion to give boost to domestic industries as this high tariff would eliminate competition.
What about US Allies?: There was no clarification regarding this, whether the allies of US would get exemption from high tariffs like Canada, European Union, so they had threatened Trump Administration that they would retaliate in a similar way. But USA exempted them soon but in May 2018 Trump administration decided to put an end to exemption thus imposing high tariffs on Canada, European Union countries again. But few days back Trump lifted metals tariffs on imports from Canada and Mexico. But Trump administration has not done the same in the case of European countries and obviously China as his main focus is now on pushing China to agree to the United State's trade terms as well as pressurising European Union and Japan to reach a trade deal before the 2020 elections. He appears to be promising to rewrite trade deals in America's favour what he had promised in his 2016 campaign.
Trump hopes that as steel and aluminium imported from China would get costlier in domestic market due to high tariff imposed on these metals, more businesses will turn inwards that is towards American steel and aluminium makers to fill the gap. In simple words he wants the American steel and aluminium industry to earn more profit as sale of metals from them would touch new heights.
Will this benefit every sector?: The answer is a clear 'NO'. No doubt that the American and steel manufacturers will benefit from this as they will be looked upon to fulfill growing demand of steel and aluminium. But when it comes to Automotive and Boeing industries such as Ford, General Motors, BA (Boeing) then they are bound to suffer as they will have to buy Steel and Aluminium at a higher price from American manufacturers as Steel and Aluminium are sold at a higher price by American Manufacturers, as prior to imposition of higher tariffs Chinese and European steel were cheaper to buy but after tariffs they are much costlier so Automotive and Boeing industries have no choice other than buying from American manufacturers, so it will lead to costlier cars and Boeings in American Market. Consequently, American citizens will stop buying cars of Ford and will turn to Japanese and other international Companies like Mitsubishi, BMW, Hyundai and Honda. So from one angle it may appear to be profitable for US but then again it can bring losses to American companies as well like Ford, General Motors thus affecting jobs in factories owned by Ford, General Motors. It's like this, Trump wants to benefit US steel and aluminium industry and on the other hand he is making other companies suffer which uses steel and aluminium as raw material. That's why high tariffs are not considered to be healthy for an economy at all, as it can lead to chain reaction leading to Trade Wars and consequently more loss of jobs.
Recently Trump officially stated that it is done to reduce Trade Deficit. At present the total Trade worth between USA and China stands at approx. $600 Billion and USA's Trade Deficit with China stands at $370 Billion. Further USA has clearly stated that it can take further steps to reduce Trade Deficits and that 'Further Steps' is a cause of worry not only for China but for many other countries as Trump administration has not clearly stated that what are those further steps going to be. There is no doubt that China 'Copies' every new innovation done by US thus Trump administration is also focusing on intellectual property theft by China. Most of the new ideas are developed in USA and Chinese companies blatantly copies all those ideas.
How China Retaliated?: China focussed on consumer electronics by imposing high tariffs on them like Apple and semiconductors, which somewhat harmed US chipmakers like Qualcomm and Intel.
But USA played very smartly here by asking all USA's 200 major companies shift to INDIA to which the companies agreed upon as in India too there is availability of Cheap Land and Labour.
All that glitters is not gold: When Donald Trump openly declared through a tweet that Trade War is good in America's interest then stock market crashed in European Countries, China and as well as in USA. Even WTO chief warned Trump that such open declaration can lead to not only recession but can bring a next level recession known as Depression. WTO chief clearly mentioned about the Great Depression that occurred in 1930s and its horrific effects.
WTO Chief Roberto Azevedo
What really happened during Great Depression of 1930s?: The Great Depression of 1930s started in 1929 and continued till 1941. The Trade War that we are talking about now is the first Trade War that ever occurred after the Great Depression 0f 1930s. During the initial stages of Great Depression of 1930s countries all across the globe plunged into trade war for the first time. As every country sought to protect their own industries and workers. But it all fired back and resulted in widespread recession at a large scale (larger than 2008 recession) what we call as Great Depression. The sales went down, lakhs of companies went out of business and millions and millions of workers lost their jobs. Lakhs of families in America itself had no money to buy basic amenities like food, clothes. The main reason for this Great Depression were two top economists of USA as they had advised American Government to resort to protectionist policy which means to protect USA's own interest and thus consequently Trade War happened leading to GREAT DEPRESSION OF 1930s.
To what extent will China be affected: As far as countries importing steel from China is concerned then there are many countries importing steel from China so China can manoeuvre skillfully and can manage to bring profit to Chinese companies by focussing on countries to which it supplies steel, as China exports it's steel majorly in Asian Countries like India, Indonesia, Arab Countries, Japan. Rather due to this high tariff imposed by USA the actual country that was suffering the most was Canada as Canada has huge market in USA but Trump few days back has lifted tariffs on Canadian imports. Yet the other countries of European Union and countries like Japan, South Korea are still the major sufferers as high tariffs are still functional for their imports.
Right now whole world wants European Union not to retaliate as Donald Trump further threatened them because if European Union will retaliate then it can lead to a true Global Trade War but as of now it is unlikely that the situation would further escalate.
Trump hopes that as steel and aluminium imported from China would get costlier in domestic market due to high tariff imposed on these metals, more businesses will turn inwards that is towards American steel and aluminium makers to fill the gap. In simple words he wants the American steel and aluminium industry to earn more profit as sale of metals from them would touch new heights.
Will this benefit every sector?: The answer is a clear 'NO'. No doubt that the American and steel manufacturers will benefit from this as they will be looked upon to fulfill growing demand of steel and aluminium. But when it comes to Automotive and Boeing industries such as Ford, General Motors, BA (Boeing) then they are bound to suffer as they will have to buy Steel and Aluminium at a higher price from American manufacturers as Steel and Aluminium are sold at a higher price by American Manufacturers, as prior to imposition of higher tariffs Chinese and European steel were cheaper to buy but after tariffs they are much costlier so Automotive and Boeing industries have no choice other than buying from American manufacturers, so it will lead to costlier cars and Boeings in American Market. Consequently, American citizens will stop buying cars of Ford and will turn to Japanese and other international Companies like Mitsubishi, BMW, Hyundai and Honda. So from one angle it may appear to be profitable for US but then again it can bring losses to American companies as well like Ford, General Motors thus affecting jobs in factories owned by Ford, General Motors. It's like this, Trump wants to benefit US steel and aluminium industry and on the other hand he is making other companies suffer which uses steel and aluminium as raw material. That's why high tariffs are not considered to be healthy for an economy at all, as it can lead to chain reaction leading to Trade Wars and consequently more loss of jobs.
Recently Trump officially stated that it is done to reduce Trade Deficit. At present the total Trade worth between USA and China stands at approx. $600 Billion and USA's Trade Deficit with China stands at $370 Billion. Further USA has clearly stated that it can take further steps to reduce Trade Deficits and that 'Further Steps' is a cause of worry not only for China but for many other countries as Trump administration has not clearly stated that what are those further steps going to be. There is no doubt that China 'Copies' every new innovation done by US thus Trump administration is also focusing on intellectual property theft by China. Most of the new ideas are developed in USA and Chinese companies blatantly copies all those ideas.
How China Retaliated?: China focussed on consumer electronics by imposing high tariffs on them like Apple and semiconductors, which somewhat harmed US chipmakers like Qualcomm and Intel.
But USA played very smartly here by asking all USA's 200 major companies shift to INDIA to which the companies agreed upon as in India too there is availability of Cheap Land and Labour.
All that glitters is not gold: When Donald Trump openly declared through a tweet that Trade War is good in America's interest then stock market crashed in European Countries, China and as well as in USA. Even WTO chief warned Trump that such open declaration can lead to not only recession but can bring a next level recession known as Depression. WTO chief clearly mentioned about the Great Depression that occurred in 1930s and its horrific effects.
What really happened during Great Depression of 1930s?: The Great Depression of 1930s started in 1929 and continued till 1941. The Trade War that we are talking about now is the first Trade War that ever occurred after the Great Depression 0f 1930s. During the initial stages of Great Depression of 1930s countries all across the globe plunged into trade war for the first time. As every country sought to protect their own industries and workers. But it all fired back and resulted in widespread recession at a large scale (larger than 2008 recession) what we call as Great Depression. The sales went down, lakhs of companies went out of business and millions and millions of workers lost their jobs. Lakhs of families in America itself had no money to buy basic amenities like food, clothes. The main reason for this Great Depression were two top economists of USA as they had advised American Government to resort to protectionist policy which means to protect USA's own interest and thus consequently Trade War happened leading to GREAT DEPRESSION OF 1930s.
To what extent will China be affected: As far as countries importing steel from China is concerned then there are many countries importing steel from China so China can manoeuvre skillfully and can manage to bring profit to Chinese companies by focussing on countries to which it supplies steel, as China exports it's steel majorly in Asian Countries like India, Indonesia, Arab Countries, Japan. Rather due to this high tariff imposed by USA the actual country that was suffering the most was Canada as Canada has huge market in USA but Trump few days back has lifted tariffs on Canadian imports. Yet the other countries of European Union and countries like Japan, South Korea are still the major sufferers as high tariffs are still functional for their imports.
Right now whole world wants European Union not to retaliate as Donald Trump further threatened them because if European Union will retaliate then it can lead to a true Global Trade War but as of now it is unlikely that the situation would further escalate.
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