US CHINA TRADE WAR

it's been more than a year since the two largest economies of the planet, The United States and the People's Republic of China clashed. The 'Trade War' as it has come to be known, has sent ripples throughout the global economies, leading to fears of a worldwide recession. But what set off this trade war? What will be its implications?

The China–United States trade war is an ongoing economic conflict between the world’s two largest national economies, China and the United States. The conflict, initiated by President of the United States Donald Trump, has been characterized by increasing tariffs and other trade barriers with the goal of forcing China to make changes to what the U.S. says are "unfair trade practices"

“The trade war is weighing ‘like a big, dark cloud’ on the global economy”

 -Christine Lagarde

 

BROAD CRONOLOGY

July 6, 2018: American tariffs on $34 billion of Chinese goods came into effect. China imposed retaliatory tariffs on US goods of a similar value. The tariffs accounted for 0.1% of the global gross domestic product.

 

August 2018: The Office of the United States Trade Representative published its finalized list of 279 Chinese goods, worth $16 Billion, to be subject to a 25% tariff from August 23, 2018. In response, China imposed 25% tariffs on $16 billion of imports from the US. Tit for tat continues in case of complains in WTO also.

 

September 2018: The US announced its 10% tariff on $200 billion worth of Chinese goods increasing to 25% by the end of the year. China retaliates with 10% tariffs on $60 billion of US imports.

 

May 2019: Trump stated that the previous tariffs of 10% levied in $200 billion worth of Chinese goods would be raised to 25% on May 10. Huawei, a Chinese multinational technology companyis blacklisted by US.

 

August 2019: The U.S. Department of Treasury officially declared China as a Currency Manipulator. In July 2019 the IMF found the Yuan to be correctly valued, while the dollar was overvalued. China denied manipulating its currency.

 

 

 

September 2019: China imposed 5% to 10% tariffs on one-third of the 5,078 goods it imports from America. United States imposed new 15% tariffs on about $112 billion of Chinese imports.  The People's Bank of China announces a 0.5 percent reduction in its reserve requirement ratio in response to the slowing of China's economic growth rates caused by the trade war.

In April 2018, China announced that it would eliminate laws that required global automakers and shipbuilders to work through state-owned partners. President of China and General Secretary Xi Jinping reiterated those pledges, affirming a desire to increase imports, lower foreign-ownership limits on manufacturing and expand protection to intellectual property, all central issues in Trump's complaints about their trade imbalance.[180] Trump thanked Xi for his "kind words on tariffs and automobile barriers" and "his enlightenment" on intellectual property and technology transfers. "We will make great progress together!" the president added.

 

By early July 2018, there were negative and positive results already showing up in the economy as a result of the tariffs, with a number of industries showing employment growth while others were planning on layoffs. Regional commentators noted that consumer products were the most likely to be affected by the tariffs. A timeline of when costs would rise was uncertain as companies had to figure out if they could sustain a tariff hike without passing on the costs to consumers.

 

A Voice of America video about the effects of the trade war on U.S. soybean production

American farmers were particularly hard-hit by China's retaliatory trade actions. According to the American Farm Bureau, agricultural exports from the US to China decreased from $24 billion in 2014 to $9.1 billion in 2018, including decreases in sales downward spiral. The 16 Billion Dollar China “replacement” money didn’t exactly hurt!"Trump stated that he would spend the tens of billions of dollars in tariffs from China to buy products from "Great Patriot Farmers" and distribute the food to starving people in nations around the world.According to an August 2019 USDA report, as American wheat exports "plunged", Canadian wheat exports "rocketed" from 32% to more than 60% of Chinese wheat imports during the most recent marketing year[ Farm equipment manufacturers were negatively affected by the reluctance of farmers to invest in new equipment, with sales dropping significantly during the first quarter of 2019.

 

Economic growth has slowed worldwide amid the trade war.The International Monetary Fund’s World Economic Outlook report released in April 2019 lowered the global economic growth forecast for 2019 from 3.6% expected in 2018 to 3.3%, and said that economic and trade frictions may further curb global economic growth and continue weaken the investment.

 

According to Capital Economics, China's economic growth has slowed as a result of the trade war, though overall the Chinese economy "has held up well", and China's share of global exports has increased. U.S. economic growth has also slowed.

 

Analysis by Goldman Sachs in May 2019 found that the consumer price index for nine categories of tariffed goods had increased dramatically, compared to a declining CPI for all other core goods.

 

Analysis conducted by Moody's Analytics estimated that through August 2019, 300,000 American jobs had either been lost or not created due to the trade war, especially affecting manufacturing, warehousing, distribution and retail.

 

By September 2019, American manufacturers were reducing their capital investments and delaying hiring due to uncertainty caused by the trade war.

 

Stock market               

Uncertainty due to the trade war has caused turbulence in the stock market, with investors "rattled" by the conflict.

On December 4, 2018, the Dow Jones Industrial Average logged its worst day in nearly a month as it declined nearly 600 points, to which some argue is in part due to the trade war.

On August 14, 2019 the Dow dropped 800 points, partly caused by increasing trade tensions between the U.S. and China. Nine days later, on August 23, the Dow dropped 223 points.

Domestic politics

Analysts speculated that the trade war could affect the 2020 United States presidential election, as tariffs have negatively affected farmers, an important constituency for Trump.

Xi may also face domestic political pressure.

 

What's next?

Both sides have threatened to take more action with new tariffs and hikes to existing duties in the coming months.

On 1 October, the US plans to raise an existing 25% tariff on some Chinese products to 30%.Washington then plans to deliver a wave of new tariffs on Chinese goods, ranging from footwear to telephones on 15 December.

If this happens, effectively all Chinese goods imported to the US will be subject to tariffs.China also plans to hit another 3,000 American products with tariffs by the end of the year.

Economist Panos Mourdoukoutas states-

China is fighting the trade war under a "false impression," that because it was now one of the world's largest economies, it had reached "power parity" with the U.S., which would result in a win-win deal. He states that such an assumption was a "big mistake": "'Interdependence' between an emerging economy, which is still relying on commodity exports and technology imports for its growth, and a mature developed country, meant [China] has long way to go before it turns into power parity.