The trade war between China and the USA has been installed since the beginning of this year, when in January 2018, Donald Trump announced the imposition of import taxes on solar panels and later, on steel and aluminium, in an attempt to fix China’s “long-time abuse of the broken international system and unfair practices”. Since then, the USA has imposed tariffs in almost half of the products imported from China, an average of $200 billion worth of products. However, China is retaliating back, with Xi Jinping responding with tariffs of $60 billion in American products. But why has this started in the first place? What can be the main outcome of this trade war?
Fair trade was created to improve equality and transparency in international trading, mainly to promote better conditions for producers in developing countries. It is a crucial measure for sustainable development. USA and China, two of the most powerful global economies, rely on each other to have access to products, with the US spending $500 billion a year on imports from China. China, on the other hand, spends about $130 billion a year on imported American products. It was this trade deficit that really started this trade war, as we know it.
But which of these global economies would lose more in the long-term? According to economy experts, the US could eventually lose a lot more, with Beijing being benefited with the trade war in the long term. In fact, if China takes this trade war as an opportunity to “build a more vertically integrated supply chain within the country” and starts investing heavily on the private sector, this could result in a good economic outcome for China. On the other hand, it would allow China to position itself as a more reliable and politically correct country, as opposed to its counterpart US with Trump exerting pressure and bullying internationally. This would attract global investments to be made in China and possibly making the Yuan, the official Chinese currency, more reliable than the American Dollar. Therefore, the US has a lot to lose with decreased trade not only with China but also with some of its allies, for instance, Canada and Europe, and with lower business and consumer confidence.
The economic strategies that both leaders have in mind to gain this trade war are still unknown. We can only keep up with the latest developments to see what the following moves, in this global economic uncertainty, will be.