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How US-China international trade war effecting the global economy?
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How US-China international trade war effecting the global economy? 

 In 2016 during the presidential campaign, Donald Trump criticized the international trade relationship between China and the United States. In particular, he claimed that China dominated the United States unfairly as a trade partnership between the two biggest economies. The U.S. has a larger nominal GDP, whereas China has a larger GDP when measured in terms of PPP (Purchasing power parity). China, as the world’s largest exporter and the United States as the world’s largest importer. They have so far been talented players for the rest of the world economy.

In 2017, trade between the chins and U.S. amounted to $ 710.4 billion, including $ 187.5 billion U.S. exports -, $ 522.9 billion U.S. imports -. Thus, China. The trade deficit with the U.S. total amounted to $ 335.4 billion. 

The main international trade export items to the USA in 2017 were:

  • Machinery and electrical equipment brought in 146 billion dollars
  • Machinery and other equipment brought in 110 billion dollars
  • Bedding and Furniture brought in 32 billion dollars
  • •Sports and toys equipment brought in 26 billion dollars
  • Plastic made equipment brought in 16 billion dollars
  • Services brought in 17 billion dollars
  • Then the United States exported to China:
  • Services 58 billion dollars
  • Aircraft -18 billion dollars
  • Machinery and equipment – 14 billion dollars
  • Grain, Fruits (soybeans) – 13 billion dollars;
  • Vehicles – 13 billion dollars;
  • Electrical equipment – 12 billion. dollars         

 In the United States, the international trade conflict brought struggles to American manufacturers and farmers. In the rest of the world, it caused economic damage, though some countries have benefited from increased manufacturing. It has also affected the stock market volatility, bringing more uncertainty and instability in the world economy. The trade conflict was criticized internationally, and many politicians and economists argue whether trade tariffs are suitable for the U.S. economy or not. Meanwhile, most farmers continued to support Donald Trump and his political view on China. 

The total tariffs applied exclusively by the U.S. to Chinese goods: 550 billion U.S. dollar

Full tariffs applied solely by Chinese to U.S. goods: 185 billion U.S. dollar

“On October 11, 2019 – the U.S. announces “Phase 1″ deal, delays tariff increases for Chinese goods”.

Also Read A New Cold war Era: United Vs. China

Monetary policy

Monetary policymakers could potentially respond to rising federal funds rate more quickly than planned, due to increasing domestic inflating within the U.S. It could affect credit flows and reduce business investments. There are no winners in this trade war since both countries facing new tariffs and experiencing declines in real exports and GDP. The rest of countries of the world are indirectly affected through weaker demand for their export goods and services. As a result, we may experience weaker global economic growth.

Based on the recent data, economic growth from 2019 to 2020 is only 2.0% (marginal), which is the threshold for a world recession—the most significant declines in real export experience in China and North American countries. The United States has the most significant reduction in real imports of goods and services. In this international trade war, China experiences the most loses, as both domestic and foreign investors will reduce their approach to capital spending in China. 

 The recent meeting analysis written by Dorcas Wong from “China Briefing” website, concluded that China achieved the economic agreement with the U.S. after the latest meeting: “Following a two-day meeting on October 10 in Washington DC, U.S. President Donald Trump announced that negotiators from the China and U.S. had reached a “First Phase” agreement that will take several weeks to finalize. As part of the first Phase agreement, China will reportedly purchase 40-50 billion U.S. dollars in U.S. agricultural products annually, strengthen intellectual property provisions, and issue new guidelines on how it manages its currency.” Trump is the main reason for conflict between the USA and China.

How it Affects Consumers

 TheInternational trade war raised consumer prices for goods such as steel and aluminum. Soda and beer suppliers were the first to raise the rates. The cost of clothes and heavy-equipment materials increased as well. The U.S. car manufacturers suffer increasing costs for vehicle production materials; as a result, customers will pay more for their car purchases. A good example, how several companies got hurt during 2019 by tariff-related costs: United Technologies: $200 billion, 3M: $100 million, Honeywell: “hundreds of millions,” Ford: $1 billion. 

The “Global Trade War” Scenario

 In this scenario, all bets are off. The U.S. and China fail to agree on international trade compromise. Additional tariffs are approved. New trade threats are declared. The White House increases attacks against Beijing industries, intellectual property rights, political and social issues, and military modernization. Uncertainty escalates, and volatility soars. Real GDP growth in the U.S. takes a severe hit, whilst Chinese growth erodes.

The “Great Global Depression 2.0” begins to spread worldwide. Risks to global point of view overshadow world GDP growth, which, following the extended global recession, would plunge to 2 to 2.5% for years to come, fueling plunging world trade and investment, as well as a series of new geopolitical conflicts. The current situation is somewhere between the “America First” and the “Muddling Through” scenario. Whilst there is still space for compromise and recovery, there is also space for more conflicts and further deterioration. It is important to recall that global growth has now split into two parts from the pre-2008 level and that the current levels of global growth and trade have been more typical to historical periods of severe recessions and widespread conflicts.   

Conclusion

The trade conflict may potentially improve the U.S. international trade deficit in the short run, but it affects nations’ economic growth in the long term. The United States imposes tariffs on China, the E.U., Mexico, and Canada. As a consequence, it already hurt the U.S. economy as prices for automobiles, computer chips, beer, and soda were raised significantly. Domestic companies had to cut jobs because of the production cost for local materials: agricultural products, bourbon, cheese, and auto parts all affected by the tariffs. President Trump should be careful, solving the trade war issue before it brings severe damage to the U.S. economy.

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