Author and Editor: Saamiya Laroia
Since 2018, the world’s two largest economies have been locked in an embittered trade war. On March 22nd, President Donald Trump signed a memorandum instructing the USTR to apply 50 billion dollars of tariffs on Chinese Goods. The reasoning behind this was that China was guilty of unfair trading practices and intellectual property theft.
This resulted in a back and forth of retaliatory tariffs that have severely affected both Chinese and US economies despite Trump’s claims that the tariffs were “paid for mostly by China, by the way, not by us [USA].” Economists have concluded that small businesses have been directly impacted by these tariffs and there is minimal recorded evidence that tariffs have any impact at all in our integrated global economy. The tariff-levying countries often have to pay higher prices and are primarily impacted. A September 2019 Study found that the Trade war had cost the U.S. economy nearly 300,000 jobs and an estimated 0.3% of real GDP. A 2020 study by the National Bureau of Economic Research found that the US firms and consumers have borne the majority of the tariff burden. China too has had record decreases in manufacturing and sector growth and there have been about $35 billion Chinese export losses in the US market. This Trade War has put the global economy in a delicate position; higher barriers will inevitably create disruptions in global supply chains, slow spread of new technologies, and adversely affect global economy and welfare.
As of 2020, US-imposed tariffs amount to about $360bn of Chinese goods, and China has retaliated with tariffs on about $110bn of US products.
In a worst case scenario there is economic decoupling, the dismantling of global supply chains and an exacerbated global post-covid depression. This would also result in a full fledged US-China Cold War, with additional tariffs and escalated attacks on Chinese intellectual property rights, political issues and humanitarian crises.
So far there has been absolutely no progress in ameliorating the structural imbalance of the US-China Relationship and both nations have nothing to show from the trade war but eroded GDP’s. China may have a growth slowdown because of the duties but Chinese legal culture and interests suggest that the ‘Trump Tariffs’ are severely unlikely to prompt China into making any legal changes. This Trade War has been criticised across the globe, with EU representatives like Donald Tusk warning that it “could cause a global recession. There have been spillover effects in export-oriented European factories and a curbing of trade between Asian industry heavyweights.
Both countries are clearly losing this war and global markets will have to make costly and time-consuming adjustments to cope with it. This trade war is not a tactical or negotiation strategy that will result in a neat compromise from either side; it could very well result in the loss of markets that will never be retrieved again.
Both countries are clearly losing this war and global markets will have to make costly and time-consuming adjustments to cope with it. This trade war is not a tactical or negotiation strategy that will result in a neat compromise from either side; it could very well result in the loss of markets that will never be retrieved again.
Gilani, Syed. “Do Tariffs Really Work In A Globalized Economy?” Forbes, 9 Jan. 2020, www.forbes.com/sites/forbesbusinesscouncil/2020/01/09/do-tariffs-really-work-in-a-globalized-economy/#4411ee05e351.
“Moody Analytics- Study of US-China Trade War.” Moodysanalytics. www.moodysanalytics.com/-/media/article/2019/trade-war-chicken.pdf. Accessed 10 July 2020.
Amiti, Mary. “Who’s Paying for the US Tariffs? A Longer-Term Perspective.” NBER, 3 Jan. 2020, www.nber.org/papers/w26610.
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