USA VS CHINA: DECODING THE WORLD’S BIGGEST TRADE WAR

USA VS CHINA: DECODING THE WORLD’S BIGGEST TRADE WAR

November 6, 2018

It is often said that the days of a powerful nation conquering weaker ones are long gone. Time has changed and so has the economic condition of all the nations. Hence, the war these days is all about conquering markets. Companies from all around the world are now caged in the global octagon, locking horns to gain more market share and grab the bigger share of the pie. From a national standpoint, two such forces are China and the United States of America. While the US has always been a step ahead of the world in terms of industrialization, China has set itself apart due to their technical proficiency. Two different nations, yielding two different expertise – already on the brink of a trade war.

The probable US-China trade war did not spark overnight though. Let’s take a quick look at how things got to this point:

22nd January. In his first major trade-related move of the year, Trump introduced tariffs on solar panels and washing machines. The decision was not received well by China, which produces 65 percent of the world’s solar modules.

Following up on this, Trump also decided to increase tariffs on aluminum and steel imports; which induced dissatisfactory responses from Beijing.

2nd – 6th April. China decides to retaliate against the United States by issuing $2.4 billion in U.S. exports. Among the list of 128 products, significant ones were agricultural products such as pork, which would disproportionately affect U.S. farmers.

Trump decided to give a stern reply immediately. Soon enough the US administration unveiled a list of 1,300 Chinese goods that could be hit with 25 percent tariffs. The $50 billion lists declared on 3rd April included goods such as semiconductors, medical devices, and flat-screen televisions – enlisted in a way to directly affect China’s “Made in China 2025” strategic plan.

On the very next day, China responds to U.S. tariffs by producing its own list of 106 American goods, including soybeans, cars, and airplanes that could be subject to tariffs of 25 percent. At this point, both nations had to deploy veteran diplomats to get a hold of the situation. Trump instructed his chief trade negotiator, Robert E. Lighthizer, to consider expanding tariffs to an additional $100 billion in Chinese imports. Meanwhile, China’s Commerce Ministry announced the next morning that China will fight Trump’s proposed tariffs “at any cost.”

16th April. Things accelerated as the US Commerce Department imposed a seven-year ban on exports to the Chinese telecom company ZTE after learning it did not abide by the rules of a previous settlement agreement. The company had first been penalized in May 2017 for illegally exporting U.S. goods to North Korea and Iran, in violation of trade sanctions. It agreed to a settlement with the United States, which required it to pay $1.19 billion in fines and punish the employees involved in violating the sanctions. After learning that ZTE had not actually punished those involved, the Commerce Department said it will bar all U.S. firms from selling key parts such as microchips to the company. However, the ban was eased within June.

15th June. As soon as the ZTE case came to a halt, Trump announced 25 percent tariff on $50 billion of Chinese goods. China responded with a targeted retaliation. Things escalated pretty quickly and after a mere 3 days, Trump said in a statement that the United States is compiling a list of Chinese goods that will face tariffs of 10 percent unless China agrees to the trade concessions laid out by his administration. If implemented, this would add a further $200 billion in import taxes for the country, meaning nearly all of the $505 billion in Chinese products coming into the United States would be placed under tariffs.

His Chinese counterparts were not silent regarding this as well. China’s Trade Ministry responds by calling Trump’s statement “blackmail.” Meanwhile, the Senate backtracks on Trump’s ZTE decision, voting 85 to 10 to reinstate a ban on the sale of U.S. components to the company.

The exchange of messages and statements have been continuing even today. President Trump’s decision has sparked negative responses from the Chinese middle class. A salesman in Beijing hopes his country will keep punching back in the commercial ring — even if it hurts his wallet. And a coffee shop owner in the Chinese capital said Trump’s tariffs have inspired her to retaliate at the store: She’s swapping U.S. products for Chinese brands. However, there are people on the other end of the coin as well. Until the past few days, when Trump stepped up his tweeting about the negotiations with Beijing, public opinion in China appeared in recent months to be leaning in Trump’s favor. Members of the middle class, a force of as many as 400 million people in both blue-collar jobs and professional roles, per government estimates, had been posting criticism of Chinese President Xi Jinping’s leadership online, particularly when it came to his dealings with the United States.

Apparently, there are other stakeholders in this US-China trade war as well. Francesco Moscone, Professor of Business Economics at Brunel University, formulated a hypothesis that, “The deterioration of the relationship between China and the US may accelerate China’s plan to conquer the South China Sea, putting an end to the American hegemony in a strategic geographical area where transit the most important maritime trade routes.” Many other academics have also speculated that these rising tensions might accumulate to form a full-fledged war. Francesco had his own thoughts about this – “The tariffs are likely to increase even further, with the expectation that the yuan (currency of China) will be to its weakest against the dollar in more than a decade. The trade war has led to military and political tensions between the two nations, addressing concerns on the vulnerability of emerging markets, as well as the financial and economic stability of the world economy.”

From the viewpoint of Bangladesh, we currently have an amicable relationship with both the nations. But this can definitely be a good case study to gather insights from so that we can maintain a meaningful and profitable relationship with our neighboring countries as well. 

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