US-China Trade war

US-China Trade war

Current Affairs CSS-2019 Question: What are the motives of Donald Trump to impose high tariffs on China in the Trade-War between Sino-US rifts?

Since 1949, US-China relations have evolved from tense standoffs to complex aggressive diplomacy, growing rivalry, and increasingly intertwined economies. Both countries have an extensive economic partnership and a great amount of trade between the two countries.

The emergence of the US-China Trade War

Both had good relations until China accused the US of launching US-China trade war and imposing high tariffs on 6th July 2018. The US has forced three rounds of tariffs on Chinese goods, which include industrial and consumer items, mounting more than $250 billion. After a short time, Donald Trump has threatened tariffs on another $267 billion worth of goods, which means all Chinese trades could be subject to tariffs. On the US-China trade war tariffs, Chinese Government spokesman said, ‘China will not bow in face of threats and blackmails’.

Effects of Aggressive Rivalry

As China is the largest lender to the US and Japan being the second largest. US debt to China was $1.15 trillion i.e., 18 % of total public debt owned by foreign countries. It would be disastrous if China cuts back on its Treasury purchases, which would throw the US into a recession. Donald Trump threats to classify China as a “currency manipulator” as a part of the US-China trade war. But what could be the actual motives of Trump to impose high tariffs on China?

Consumer Goods

China produces consumer goods at lower costs than other countries. China’s competitive pricing is a result of a low standard of living, which allows China to pay lower wages to labors. And as a result of the exchange rate which is partially fixed to the dollar. So tariffs, make US-made products cheaper than imported ones and encourage consumers to buy American. But if Trump implemented trade protectionism, U.S. consumers would have to pay high prices for their “Made in America” goods. It’s improbable that the trade deficit will change. Most people would rather pay as little as possible for electronics, and clothing, even if it means other Americans lose their jobs.

Trump has demanded that China better protect American intellectual property, including ending cyber theft. Trump ordered China to allow US companies’ greater access to Chinese markets and to cut its US trade surplus.

The motive behind Trump imposing tariffs

Trump promised to provide jobs to US people and renegotiate US trade deficits. Before agreements with China, the US had the world’s largest deficit worth $568 billion last year. China is responsible for the bulk of deficit in terms of goods, exporting $376 billion more to the US than it bought from US producers. Trump also imposed tariffs on worldwide imports of goods like steel and washing machines, which further affects products from China.

Impact of US-China Trade War so far

If the US-China trade war continues to grow forward, fears about a further escalation have rattled investors and hit global stock markets. IMF has warned a full-blown trade war would weaken US trade and will have an enormous impact on global supply chain linkages, as a result, weakening global trade.

Conclusion

The US-China Trade War which grabbed the spotlight on 2018, have sketched the outlines of a deal to end US-China Trade War and sought to negotiate their way out of such situation. But after rounds of talks, including a Chinese pledge to significantly increase purchases of American products, Trump decided to go ahead with the tariffs.

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