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The Impact of the US-China Trade War on Other Countries

Trade on the global level has been advancing fairly well in the last few decades. The recovery that the global economy has achieved since the Global Financial Crisis of 2008 has commendable. There have been concerted efforts when it comes to the prevention and the management of challenges that could reset the economy into another major crisis. This does not necessarily mean that the current times have a perfect economy that is free from any crisis. The global economy is still facing various challenges with most economists predicting that in the near future a global crisis is likely to occur (Lukin, 2019). Not everything is all rosy in the global economy. There are various specific factors investigated through research to try and find out exactly what the economy is facing that has led to the current crisis. Some of the factors as noted by Liu and Woo (2018) include the conflict between and amongst the world’s biggest economies. The recent one and the most influential of conflicts is the trade war between China and the U.S. This trade war has led to unforeseen repercussions not just in relation to the U.S. and China but to other countries around the world. Specifically, most of the impact has been directly felt in Europe and Southeast Asia. As such, it is essential that research is conducted to assess the U.S.-China trade war and its varied consequences around the world. This paper focuses on the impact of the US-China Trade War on China, the U.S., Southeast Asia, and Europe — with special focus on winners and losers from the trade war.

US-China Trade War

The US-China trade war started a while back became intensified in the year 2018. The intensification was n January 22nd in 2018 when the U.S. president announced tariffs on the solar panels as well as washing machines. This was a direct hit on the Chinese market because 8% of American solar panels came from china while the imports of washing machines from China amounted to $1.1 billion. Later that same year, further tariffs were announced. This was in March when the U.S. government announced tariffs on aluminum and steel imports in all countries. A direct hit on the Chinese economy came on March 22nd 2018 when the U.S. government applied tariffs on $50-60 billion worth of Chinese goods. This move was done based on Section 301 of the Trade Act of 1974 citing unfair trade practices between the U.S. and China (Li, He & Lin, 2018). This led to a response from the Ministry of Commerce of China. Tariffs were imposed on 128 products imported from America which the American authorities brushed aside as having negligible impact of up to 0.3%. These subtle trade war antics later graduated to significant punches. By the year 2019, the Wall Street Journal reported that owing to the US-China trade war, the lumber exports from the U.S to China would fall 40% resulting in an employment loss for hundreds of workers. Such are the implications of the US-China trade war so far (Yılmaz, 2020).

To understand the impact of this trade war, one only has to look at the sheer size of the two economies with regard to the global economy. Both the U.S. and Chinese economies account for two-fifths of the global Gross Domestic Product. There have been warnings issued with to how the trade war is shaping up to be. For instance, the Organization for Economic Cooperation and Development (OECD) has sounded the alarm noting that the uncertainties that the US-China trade war has carried over the last few months will have an adverse effect on the global investment. The organization notes that the global business investment will only rise by 1.7% by May 2020 which will be half the rate that was earlier predicted of 3.5% (Marchant & Wang, 2018). Such a drop means that the global economy is bound to face a decline that may influence the next few years in a negative way.

There have been efforts to try and hold trade talks between the U.S. leaders and the Chinese leaders. These talks have not been entirely successful with other talks planned just before the G-20 Summit to be held in Japan later this year. The most recent effort by the U.S. against the Chinese trade is 10 percent of tariffs on $300 billion on all Chinese imports. The Chinese government responded by stopping the purchases of U.S. agricultural products. A few days later, the People’s Bank of China allowed the yuan to depreciate which led to major shockwaves to the markets worldwide (Chang et al., 2019). The currency has become the new battleground between the two nations which is very lowing given that the global economy is already showing signs of a slowdown.

Impacts of the Trade War

The implications of the US-China trade war are not just on an economic level. The political environment has also become heated in the last few months owing to the US-China trade war. China and its allies have taken a wide berth of the political affairs of the U.S. and its allies. This means that the political goodwill between nations allied to the U.S and those allied to China has been diminishing. This means that the benefits of having political goodwill between countries in the global economy are slowly ending (Sheng, 2018). For this reason, the trade war has led to the rise in quotas, tariffs, and embargoes between various nation on the account of the rising political tensions between the East and the West.

Impacts of the Trade War on the US

As noted above, the U.S. economy has been weakened due to the trade war between the two nations. In fact, as reported by Lai (2019), the advisors to the U.S. presidency are increasingly worried that the US-China trade war will weaken the president’s claim of in the next general election as the rate of unemployment has risen since the trade war began. The author continues to state that as much as the US-China trade war could be justified, it has reached a point where it cannot be economically justified as the two nations have lost a lot economically.

The American farmers have felt the brunt of the US-China trade war. As per Marchant and Wang (2018) the farmers have seen their agricultural exports drop from $24 billion in 2014 to $9.1 billion in 2018. Such a drastic drop has seen most farmers fail to meet their economic responsibilities for their families. There have been drops in sale of soybeans, pork, and wheat. Farm bankruptcies have been on the rise with manufacturers for farm equipment like Deere & Company cutting its profits more than twice.

Further, the U.S. economy has experienced huge trade deficiencies. In February of 2018, Silver (2018) reported that the U.S. economy reported a trade deficit that was a record high. By the end of year 2018, the trade deficit was $621 billion which was the highest it had ever been since 2008. To consumers, reports predict that the 25% tariff on Chinese furniture will cost US consumers in excess of $4.6 billion annually.

The impact that the US-China trade war has had on the U.S. economy is not to be assessed only by what is happening within the borders. It also has to do with how other countries are reacting to US exports. As per Zhai (2017), since 2018 the number of tariffs against U.S. exports has increased. The total tariffs on American exports are 20.7% which has led to a decline in the exports as well as the balance of trade becoming gradually unfavorable in particular industries. These effects have seen other emerging markets cash in on the decline of the US economy. Surprisingly, some of the winners of the US-China trade war are China herself.

Impacts of the Trade War on China

China, as alluded to earlier, has not been as adversely affected by the trade war as the U.S. has been. The main reason for the idea that China has gained is because most of the ASEAN countries have withdrawn their investments and companies from the West to China and its Southern neighbors. Given the rise in interest from other countries to move their manufacturing plants to China and its southern neighbors, it is predicted that as the trade war drags on, it is likely that the ASEAN countries will welcome more trade from foreign nations more than the U.S. will (Lukin, 2019). As a result, China may lose in terms of GDP and employment in the short term, but if the trade war persists, then it will gain much more in the coming years.

Calì (2018) reported that China’s annual trade surplus increased in the year 2018 despite the trade war. The surplus was $323.32 billion which was a record high. China’s diversification of trade has been noted to be the reason why its economy has not sustained serious hits as the U.S. economy has. Further, it has been reported that China has maintained good relationships with neighboring nations in Southeast Asia. This has ensured that despite the trade, the country still has large markets around it to improve its trade deficits. With most nations taking their business to the ASEAN countries, China is also bound to gain from the trade war as the ASEAN agreement grants China the chance to trade with and through the nations within the ASEAN region.

However, not everything is rosy as concerns the trade war in China. There has movement of manufacturers seeking to move out of China. As a result, the country has lost many manufacturers to other nations owing to the trade war. The move by the U.S. government to dissuade all American companies from doing business with China has also seen some of the biggest global corporations withdraw from the Chinese market. This has not just denied the Chinese market of revenue but also vital inputs for some of the products made in China such as smartphones and televisions. This has seen most of the Chinese companies suffer greatly with regards to obtaining pertinent inputs for production such as the recent denial of Android services to Huawei. Zhai (2017) predicts that such moves may continue to emerge between the two nations so long as the trade war continues.

Impacts of the Trade War on Southeast Asia

The Southeast Asian region has gained a lot from the trade war. As noted earlier, most of the companies in the global economy have been avoiding both China and the U.S. in terms of production. As a result, manufacturers have found the ASEAN countries excluding China to be the best for relocating their manufacturing processes. The region’s policies are endearing to international companies due to the tax benefits offered in comparison to Europe or the Americas (Li, He & Lin, 2018). As such, the ASEAN countries continue to cash in on the trade war between China and the U.S. in this manner.

Vietnam is one of the countries that has greatly benefited from the trade war. The country’s exports increased in the first quarter of 2019 mainly due to the vacuum created by the reduction in China’s export into the United States. It was reported that the country’s export volume increased by 36% while it is projected that in the next six months the nation will receive products diverted from China equaling 7.9% of its GDP (Yılmaz, 2020). Even for the ASEAN countries, not everything has been positive in relation to the China-US trade war. The president of U.S.A. decided to label China as a currency manipulator which means it was removed from the procurement contracts plus other benefits it obtained from the U.S. The ASEAN countries including also found themselves fearing the same fate. Vietnam, Malaysia, and Singapore were added to the watchlist of potential currency manipulators (Marchant & Wang, 2018). This would the loss of a lot of money for these countries leaving their economies vulnerable. Therefore, the trade war has also had an adverse effect on the Southeast Asian region.

Impacts of the Trade War on Europe

In Europe, the implications of the trade have been felt. Germany has felt the brunt of the trade war the most. This is in spite of the excellent relations that German has with China and the United States of America. Britain and Germany have already started showing signs of a weak manufacturing performance as per the first quarter reports of both countries in 2019. For the most part, the European Union has sided with the United States in its treatment of Chinese policies. In fact, the EU has been re-adopting some of the policies adopted by the U.S in connection to the Chinese economy. The EU has for a long time criticized China’s unfair trading practices as well as the state-owned enterprises. Further, both Europe and the U.S. agree that China has security risks with regard to spying through Huawei (Chang et al., 2019). As such, the effects of the China-US trade war are not entirely frowned upon because the leadership of the EU is in support of the punitive measures taken against China. To them, it is cost of ensuring that China adheres to proper trading principles with other countries around the world and desists from spying.

Suggestions for Future Studies

The are several works of literature on the China-US trade war. Most of the studies have been focusing on the impact that the war has on the two countries. There are few that focus on the impact that the war has on other Asian countries or the African countries. As such, it is important that focus is expanded to these other countries as well. Moreover, it is important that the trade war is studied as a concept, not as an event. Most researchers have been focusing on the issue as an event meaning that the question of why trade wars arise and how they can be ended is not addressed (Yılmaz, 2020; Marchant & Wang, 2018; Chang et al., 2019). Indeed, the China-US trade war is unique but it does not mean that it cannot happen in the future between other nations. As such, answers need to be sort to identify how trade wars between large global economies can be mitigated to ensure that they do not escalate to lead to global crises.

Additionally, there is a need for economic theories to be developed to identify, quantify and assess the impact of trade wars between various nations. This will lead to the making of informed decisions when it comes to countries deciding to engage in trade wars between each other. Moreover, the World Trade Organization needs to be given enough authority to be able to tame large economies and ensure that trade is fair between all nations big or small. This is the issue that has led to the current trade war. China is accused of using unfair trade practices. In this regard, it is critical that better ways of ensuring that all players in the global economy adhere to fair trading practices rather than have nations resulting to trade wars.

Lastly, it is important for researchers to address the fact that bilateral trade between China and the U.S. that is suffering seems to be affecting the U.S. more than it is affecting China. The fact that China has diversified its revenue basis seems to be the answer to this paradox but without adequate research results, it cannot be completely verified. It is critical for researchers to assess the impact that the trade war has had on both countries and especially in the coming years. This assessment will help economists to brace for further downturns as a result of the trade war to avoid major shocks in the global economy like it has been happening.

Conclusion

In conclusion, this paper was focusing on the impact of the US-China Trade War on China, the U.S., Southeast Asia, and Europe — with a special focus on winners and losers from the trade war. The losers have been identified as the U.S. and European region while the winners are the Southeast Asia countries including China. To understand the impact of this trade war, one only has to look at the sheer size of the two economies with regard to the global economy. Both the U.S. and Chinese economies account for two-fifths of the global Gross Domestic Product. The U.S. economy has been weakened due to the trade war between the two nations. China has not been as adversely affected by the trade war as the U.S. has been. The main reason for the idea that China has gained is because most of the ASEAN countries have withdrawn their investments and companies from the West to China and its Southern neighbors. The Southeast Asian region has gained a lot from the trade war. As noted earlier, most of the companies in the global economy have been avoiding both China and the U.S. in terms of production. In Europe, the implications of the trade have been felt. Germany has felt the brunt of the trade war the most. Britain and Germany have already started showing signs of a weak manufacturing performance as per the first quarter reports of both countries in 2019.

 

 

References

Calì, M. (2018). The impact of the US-China trade war on East Asia. VoxEU. org16.

Chang, S. U. N., Zhigang, T. A. O., Hongjie, Y. U. A. N., & Hongyong, Z. H. A. N. G. (2019). The Impact of the US-China Trade War on Japanese Multinational Corporations (No. 19050).

Lai, E. L. C. (2019). The US-China trade war, the American public opinions and its effects on China. Economic and Political Studies7(2), 169-184.

Li, C., He, C., & Lin, C. (2018). Economic Impacts of the Possible China-US Trade War. Emerging Markets Finance and Trade54(7), 1557-1577.

Liu, T., & Woo, W. T. (2018). Understanding the US-China trade war. China Economic Journal11(3), 319-340.

Lukin, A. (2019). The US-China Trade War and China’s Strategic Future. Survival61(1), 23-50.

Marchant, M. A., & Wang, H. H. (2018). Theme Overview: US-China Trade Dispute and Potential Impacts on Agriculture. Choices33(2), 1-3.

Sheng, M. (2018, December). The Impact of Sino-US Trade War on Chinese Industrial Structure and Countermeasure. In 2018 8th International Conference on Management, Education and Information (MEICI 2018). Atlantis Press.

Silver, A. (2018). US-Chinese trade war puts scientists in the crosshairs. Nature558(7710), 494-496.

Yılmaz, Ö. T. (2020). USA-China Trade Wars: Back to Protectionism in World Trade. In International Trade Policies in the Era of Globalization (pp. 71-93). IGI Global.

Zhai, F. (2017). Trade Cooperation and Conflicts between the United States and China: Risks and Realities. US-China Cooperation in a Changing Global Economy.

 

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The Impact of the US-China Trade War on Other Countries was first posted on October 20, 2019 at 8:45 pm.
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