The sheer size of the US and Chinese economies ensures that the stakes in this trade war are high. Together these two giants constitute almost two-fifths of global GDP, which means even if not directly, there has to be an indirect impact on every nation’s economy globally.
“War does not determine who is right – only who is left.”
― Bertrand Russell
What is this Trade War All About?
All this goes way back to September 2011, before Trump was running for President, he had tweeted that China is neither a friend or an ally. Cut to his presidential campaign which was all about “Let’s make America Great Again”, he was all about china’s trade malpractices and how it was thieving Americans.
The world’s two largest economies have imposed tariffs on billions of dollars’ worth of one another’s goods since July 2018.
Impact on America
- 49 per cent of imports subject to new tariffs are intermediate goods, which are subsequently used in American manufacturing facilities to make finished products.
- The raised import tariffs are hitting the US manufacturers who rely on lower-cost inputs shipped from China.
- Another set of business caught in this crossfire is the firm that had their manufacturing units in China and had the finished goods imported back to the US, these small businesses are now forced to move out from china to other south-east Asian countries.
Impact on China
- As a measure to step aside from the enormous tariffs, many countries are moving out of China, which means a significant opportunity loss
- A recent survey by the American Chambers of Commerce in China and Shanghai found 40% of respondents are considering shifting or have already relocated their Chinese manufacturing facilities – mostly to South East Asia.
- Google is shifting its Pixel smartphone production to Vietnam from China starting this year and that the company is also looking to shift some of its smart home speaker assemblies to Thailand.
- Also, the US has been the primary consumer for Chinese goods, now with Americas clear intention to shop around. China has to gear up for that loss too.
Impact on India
- A piece of good news here is, India isn’t affected by this tit for tat trade war, mainly because our exports is just 2%, which is very low to have an impact.
- A silver lining for us here is that India has an opportunity to strengthen its trade footprints.
- India is targeting companies including Apple and several others with an aim to encourage them to shift business out of trade war-hit China, according to Reuters
Impact on the Rest of the World
Nine significant economies around the world, including the UK, Germany, Russia, Singapore and Brazil, are already showing signs of economic slowdown and are on the brink of recession. The economic impact of the US-China tariff war will be catastrophically huge. It is estimated to cost $585 billion to the global economy by 2021.
Except for Australia, which ships around a third of its exports to China, mostly commodities such as iron ore and coal that are used by heavy industry and in the building of apartments. Trade has been so good, and that Australia logged its first current-account surplus—a measure of trade and financial flows with other countries—since 1975 in the second quarter of this year.
The end line is that this escalating U.S.-China trade war is unwinnable by either side,
According to new research shown exclusively to TIME. A further new number-crunching analysis says only China has the manufacturing capacity to satisfy the U.S.’s huge appetite for products, meaning American consumers must continue to buy from China or U.S. retailers will suffer. Inversely, American demand far outstrips the rest of the world combined, meaning China cannot replace its American customers with those elsewhere for the foreseeable future—or at all.
Let’s all hope that sense prevails and this war is brought to an end before much harm is done to the global economy.