Let’s quickly recap what has happened till now between the U.S. and China-
January 2018: The first move that signalled a trade war was by the U.S. when it imposed a tax on solar panel and washing machine imports from China.
March 2018: Then in March, U.S. raised tariffs (taxes on imports) by 25% and 10% on steel and aluminium respectively. While the U.S. imports only 6% of these products from China, the trade is worth $2.7 billion to China. So obviously China didn’t take this move quietly and instead came up with its own tariffs for the U.S…
April 2018- In April, China hit back with tariffs on U.S. imports worth $2.4 billion which included agricultural products like pork and hit the U.S. farmers big time. Following which Trump retaliated by proposing to levy 25% tariffs on 1300 Chinese goods worth $50 billion such as semiconductors, medical devices and flat-screen televisions. Once again China responded by producing its own list of 106 American goods, including soybeans, cars and aeroplanes, that could be subject to tariffs of 25 per cent. This went on and Trump ordered his chief trade negotiator to expand its tariffs on Chinese goods worth $100 billion while China’s Commerce Ministry said they’d fight Trump’s tariffs at any cost.
This tit-for-tat continued till June…
June 2018- After saying that the initially announced tariffs were kept on hold, Trump suddenly announced a 25% import tax on 1,100 Chinese products worth $50 billion. A move that would not only harm China but also affect American businesses since they depended on these imports to set up their end products.
And even China retaliated with its own revised tariffs on American imports worth $50 billion. This round of tariffs targeted the agricultural sector especially those who were major Trump supporters.
All these import duties were scheduled to come into effect from July 6
July 2018- On July 6th the previously announced tariffs of 25% on Chinese imports worth $34 billion finally came into effect, instigating China to also immediately implement 25% tariffs on U.S. imports worth $34 billion.
August 2018- U.S. and China both imposed tariffs on each other’s imports worth $16 billion and now they both had imposed tariffs on imports worth $50 billion (previously imposed $34 billion+ $16 billion)
September 2018- Trump threatened to impose tariffs on $267 billion worth of Chinese exports in addition to $200 billion worth products that he might hit with duties. Not to forget the $50 billion previously imposed.
This would total up their tariffs on Chinese imports worth $517 billion but last year the U.S. imported goods worth only $507 billion, clearly showing Trump was out of ways to impose duties on China!
So what does this tug-of-war between the U.S. and China mean for our economy-
When our rupee weakens against the dollar it means we have to pay more dollars for our imports. In other words, our current account deficit (a situation where imports exceed exports) widens. This also spells trouble for our markets because investors lose confidence in our country and flock to safer countries like the U.S. to park their funds. Due to this trade war, our markets have been at an all-time low of 3 weeks!
When U.S. raised tariffs on steel and aluminium it wasn’t restricted to steel and aluminium imports from China only but imports from countries all over the world, meaning even India has to pay these tariffs for its steel and aluminium exports to the U.S.
And considering our steel and aluminium trade with them, this would mean paying approximately $241 million in taxes to the U.S. Thus widening our current account deficit (a situation where imports exceed exports) even further!
Top Steel Producers In The World
- South Korea
- South Korea
As per stats on CNN Money, China leads the market when it comes to steel production. A lot of times the excess steel it produces ends up being ‘dumped’ in countries forcing smaller players out of the competition. To prevent this dumping and promote domestic steel and aluminium production Trump raised steel and aluminium tariffs. But this plan sort of backfired as American industries backed heavily on China to produce cheaper steel and aluminium. Now raised tariffs would mean costs for industries dependent on steel and aluminium would also rise and the American consumer would have to pay more for these products. While this move was aimed at China, other countries like Canada and the EU who export steel and aluminium to America were also hit. And just like China they too came up with counter-tariffs for the U.S., ensuing the world in a massive TRADE-WAR.
India didn’t stay quiet to America’s tariffs, even they imposed duties on 30 different types of goods imported from the U.S. ensuring that the U.S. will have to pay $238 million as duties to India.
Trade wars could actually be good for India, click here to know how.
The above impacts might only be short-lived. In the long-run, the U.S. China trade war could actually be good for India. According to this report, India should take maximum advantage of the ongoing trade war between the U.S. and China and export machinery, electrical equipment, vehicles and transport parts, chemicals, plastics and rubber products to the U.S because it now has a competitive edge over China in terms of these goods. Meanwhile, this trade war also means once frenemies India and China might actually come close since China will need a big enough market to export its excess products.
What they meant when they said...
“I give China great credit for taking advantage of the US”
Trump’s rationale behind starting a trade-wars was pretty simple- he wanted to fix his deficit (when imports exceed exports) with China and punish them for allegedly stealing trade secrets, counterfeiting famous brands, pressuring Amercian companies to share technology, and in short engaging in unfair trade practices with America.
But he did not blame China for both these problems and blamed his presdiential predecessors instead. He even went on to say this- “After all, who can blame a country for being able to take advantage of another country for the benefit of its citizens!”
“Trade wars are good and easy to win”
Since U.S. imports a lot of goods and services from other countries, it has huge trade deficits (imports exceed exports). And they lose millions of dollars in trade every year. To prevent this from happening and to keep the dollars in their own country Trump reorganized trade, by imposing tariffs on imports so they become expensive and industries are encouraged to produce goods locally (this is known as protectionism).
‘Dark day in global trade’
Analysts described the events of 6th July 2018 as a dark day in global trade. While the U.S. stocks rose in the run-up to the day, Chinese stocks crashed almost entering a bear market.
“A lot of people are desperate to move out of China”
The trade war has made many manufacturers rethink their supply chain. For instance, Steve Madden shifted production from China to Cambodia because handbags were included in the list of proposed tariffs on goods worth $200bn. Even Hoover-maker Techtronic Industries shifted its production centres to Vietnam. While the shift had started even before the trade war mostly to take advantage of lower wages and avoid concentration in one country the trade war only intensified this shift of production centers away from China.
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