Trade War between the United States and China

Donald Trump, the American president in 2018, initiated the conflict by imposing three rounds of heavy tariffs on Chinese goods to encourage American products. China retaliated by imposing its own tariffs ranging between 5-25 per cent for American goods. Beijing has accused the United States of making attempts to curb the rise of the growing Chinese economy. The Americans, on the other hand, have accused China of intellectual theft. Their mutual distrust has threatened the stability of the world economy at large.

What is Tariff

A tariff is a type of tax levied by a country on imported goods from a different country at borders. They function as a revenue collection mechanism for the government and also enable the government to encourage domestic goods in the market. 

Due to tariffs, the market price of imported goods increases, as a result of which, people choose domestic products. There are many advantages as well as disadvantages of tariffs. They have also been used as a tool for trade wars by various countries.

Trade War

A trade war refers to the economic conflict between two countries in which each country decides to impose additional tariff duties on the other country’s imported goods to encourage the growth of domestic firms. These can erupt if one country feels that the foreign companies are benefiting by using unfair means in its domestic market, due to which the domestic firms can suffer losses. Misunderstanding is also one major reason behind trade wars when the participating countries fail to reach a mutual interpretation of free trade.

Background of US-China Trade War

The Chinese economy benefited greatly from its ascension in the World Trade Organisation in the year 2001. Chinese foreign trade grew in leaps and bounds. The bilateral trade between the United States and China touched a whooping USD559 billion in 2019. However, all of this had a major drawback for the American economy, which was running a trade deficit with China. Trade deficits occur when a country’s imports far outweigh its exports. The trade deficit had also transformed into a political agenda in the US Presidential Elections of 2016, which saw Donald Trump being elected as the president of the United States. The deficit steadily grew to USD378 billion in 2018.

The US decided to overcome the trade deficit by imposing heavy duties on the Chinese imported goods. At the peak of the trade war, the US had imposed a tariff worth USD360 billion on Chinese goods. The Chinese retaliated by imposing tariffs worth USD110 billion on American goods. 

The Beginning

Reducing the trade deficit with China was one of the many major promises of Donald Trump in his run-up to the presidential elections of 2016. According to him, one of the major causes of the trade deficit was the unfair and unethical practices adopted by the Chinese companies, which included, but were not limited to intellectual property theft, restricted access to American companies in the Chinese mainland and forced payment transactions. China, meanwhile, maintained its stance that America was trying to restrict its rise as a major world economy.

Timeline

The US-China trade war began with the US imposing 25 per cent tariff duties on some major Chinese imports such as cars and aircraft parts on July 6, 2018. China responded by imposing 25 per cent duties on imports of 525 goods coming from the US. In total, four rounds of tariffs were imposed by the US while the Chinese also retaliated by imposing their own tariffs ranging between 5-25 per cent. In 2020, a deal was signed by both the parties, in which China agreed to boost US imports above the 2017 levels and also strengthen intellectual property rules. However, the trade war is still unofficially continuing with the trade deficit still present. The deal between the two nations also expired in December 2021, when China failed to meet the expected outcomes in terms of boosting US imports.

Impact

The US-China trade war has economically impacted both countries since its inception. It has resulted in a sharp fall in bilateral trade, increased prices of imported goods and an increase in trade with countries not involved in the trade war.

The following are some important effects of the trade war:

• The conflict has adversely affected global economic stability.
• The sectors like office machinery and communication equipment were the ones which were the most affected. Trade-in chemicals and machinery also dropped by a significant margin.
• The US tariffs caused a 25 per cent export loss. However, the Chinese firms managed to remain in the market by maintaining around 75 percent of their exports to the United States.
• There is another aspect of the trade war. The loss of China meant other countries gained in the competitive environment of the United States economy. Taiwan, for instance, gained close to USD4.1 billion by exports to the US. 
• Around 63 per cent of the Chinese export loss was diverted to other countries. The remaining 17 per cent was either lost or its market was captured by the American exporters.
• Southeast Asian countries were the ones to benefit immensely from the conflict between two giant economies.
• The Chinese tariffs on American goods resulted in high prices of American goods in the Chinese market and resulted in the gain of the Chinese market.
• The covid-19 pandemic also affected the market in an adverse fashion.

Conclusion

US-China trade war refers to an economic conflict between the United States and China that erupted in the year 2018. Both the nations imposed heavy tariff duties on imported goods from the other country. The US accused China of adopting unfair practices to increase market reach while China accused the US of trying to undermine its economic growth.