Trade wars occur when two or more nations impose tariffs on one another’s products and services tthe o limit the nature and level of exportation and importation. Imposing tariffs tends to discourage most investors from trading since high restrictions make the trading operations not only expensive but also less profitable. For several years now, the U.S. has been one of the most dominant countries to have developed its market share globally. With the current drastic growth of China as an economic powerhouse, the instability as a result of global trade has been felt mostly in Africa nations where China has demonstrated its economic strength in the past decade or so. In recent years, China and the U.S. have been involved in a serious trade war that has resulted in the two economic giants issuing and exchanging threats revolving around the imposition of new trade tariffs. In this regard, U.S. president, Donald Trump imposed 25 percent tariffs on China’s products. As much as both nations think they are engaging in a productive war, neither of the two nations stand to benefit. The U.S., in particular, is likely to lose much economic ground as a result of the trade war. This paper explores the inefficiencies resulting from the trade war that tends to cause more harm than good to the two nations and the world at large.
In many cases, are imposed on goods that are not produced by different nations. Besides, tariffs have commonly been imposed to protect a country’s local industries and promote their products and services. With the increasing rate of globalization further encouraging international trade, imposing tariffs has been considered an antecedent of trade wars mostly among nations competing economically. The trade war between China and the U.S. has been caused by the imposing of tariffs on various products (Bhuimali and Chakraborty 114). President Donald has always criticized China’s approach and decision to copy American technology in the manufacturing and production of their products and service. The process has led to the two nations imposing tariffs limiting the importation of different goods between them. Some of the products and services from the U.S. market that have been targeted include agricultural and food products. Although the World Trade Organization (WTOA) permits imposition of tariffs with the objective of safeguarding a nation’s economic interests President Donald Trump’s decision to impose tariffs on China’s products has been perceived to be an unfair trade practice meant to affect China’s trade partnership with the U.S. The tariffs that are perceived to be of benefit to the U.S. have affected its trading relationships with not only China but other nations as well. According to Powell, the U.S. has experienced the highest decline in real imports of goods and services. In comparison with the baseline level, real U.S. imports are expected to fall by 4.5 percent in 2020. This demonstrates that the trade war perceived to be of economic benefit could largely affect the U.S.
The United States’ major purpose of imposing tariffs of China was to protect its national security and intellectual property. This has been observed to be a strategy of reducing U.S. trade deficit with China. China has been involved in malpractices that have affected the U.S.’s economy negatively. This has seen major strategies being considered by the U.S. administration to ensure that most of China’s products are taxed to safeguard business interests of the U.S. Tariffs have also been imposed on aluminum and steel imports although the measure has led to the trade war. This is contrary to the objective of safeguarding the two nations’ interests to ensure their products remain competitive in the market (Powell). However, the strategy’s objective is not likely to be achieved as other nations might also suffer an economic disadvantage because of the potential gaps in the global market. Thus, the trade war between the two nations is of negative impact to both nations and the entire global economy (Powell). This is because most of the developing nations rely on the WTO for loans to boost their economy and the trade war means that revenue by the WTO’s revenue received from the two nations will decline. As a result, this will hurt industries as most will have to downsize their workforce to accommodate the economic changes.
According to the United Nations Conference on Trade and Development, as the trade war continues between the nations, it is expected that there will be a major disruption for global businesses. This is even though some of the companies from nations such as Mexico, Japan, Canada, and Europe are expected to benefit as they would add the test of billions of dollars in export orders. The global trade war that succeeded in the Great Depressions era serves as a benchmark for the current trade war. In the wake of new tariffs, global trade declined by 25 percent for the period. As a result, different economies globally crushed due to the increasing debts and declining domestic currencies. One of the major phenomena allied with the experienced trade war between US and China is the devaluation of currencies such as the dollar. One of the ways of mitigating the pressure or burden felt by nations involved in a trade war is devaluation of domestic currencies. This helps in offsetting the negative impacts of high tariffs as was seen in the China-U.S. trade war where devaluation was experienced from late July 2018 (Luebe 9). It was expected that the effect would be felt once China’s People’s Bank sets CNY to 6.7671 to the USD (Luebe 9).
Powell asserts that the current trade was between China and the U.S. may seem chaotic with different turns and twists to flummox even the most seasoned analysts. However, since US President Donald Trump announced the nation’s first tariffs, his administration has only pursued a single core approach. The approach is weakening China’s economy to force the country to change its trade practices. Although the approach has worked, it has not been in line with initial expectations. China’s economy had previously expressed signs of slowing down before even the first targets were executed and the faceoff with the US has accelerated that trend. With China’s economy declining in 2018 to its lowest since 2009, there are suggestions that the conditions could further worsen in case the trade war continues.
The effects of China’s economic downfall have directly affected the U.S. economy. China’s economic slowdown has also put some of the most crucial industries of the U.S. in an economic dilemma (Lau 52). For instance, Apple has been the most affected organization as a result of the trade war. The tech giant that for years has been considered the globe’s most valuable brand cut its revenue projections on Jan 2019. The move suggests that trade tensions have taken a toll on the company’s economic objectives. The iPhone that accounts for 60 percent of Apple’s sales is at the center of the trade wars (Lau 62). This is an illustration of how the trade war is adversely affecting both American and Chinese economies.
According to Spence, the trade war instigated by the U.S. is expected to have adverse impacts on the global economy (52). Since its implementation, the U.S. is yet to benefit as the country has encountered significant economic losses in recent years. A strategy meant to support local production has become detrimental to the country’s own companies with companies such as Apple recording a continuous decline in profits. A country’s economy is mitigated by strategies meant to support the exportation of its products while also allowing product importation as this will enhance free trade across the nation (Bhuimali and Chakraborty 112). The government should rather implement subsidies to support its exports and impose tariffs on general products rather than focusing on a particular nation, which in this case is China.
Trade protectionism can be expressed as apolitically motivated defensive measure usually with no benefits to a county. It may work in the short-term but tends to be disastrous in the long run as it makes a nation and its industrial sectors less competitive in the international trade market. According to Spence, in the long-term, trade wars tend to weaken a country’s industries as a lack of competition hinders the innovativeness of most companies. This then results in the decline of the quality of domestic products. Increased and free trade opens different markets for businesses to sell their goods and services (Spence 45). With the introduction of tariffs, there has been a decreased demand for U.S. products translating to fewer exports. This has adversely affected American companies triggering the lay-off of workers. As much as other nations can still export products and services to the U.S., the fact that China is the second largest economic block with high tech products means that the U.S. is expected to lose. This is considering the fact that China enjoys a large market share and is increasingly expanding and being embraced by more nations as compared to the U.S. Spence’s analysis expresses how Chinese firms are responsible for almost 125 of the continent’s industries and are Africa’s largest trading partners amidst a decline of Africa’s trade with the U.S. (32).
None of the two nations stand to benefit or win the current trade war. The war is expected to hinder the nature of trade across the two nations and the world. Since the start of the trade war, the U.S has been experiencing a decline in product export; a factor that has affected the companies and directly affected the living standards of Americans. The trade war between the nations is negatively impacting the two economies. Often, free trade is favorable for a country aiming at national economic growth. Given the adverse effects of the trade war, both the U.S. and China should reach a consensual agreement and address key challenges such as market access, intellectual property rights, and joint venture ecology transfer.
Bhuimali, Anil, and Debasish Chakraborty. “Trade War-A Threat to Multilateral World Trading System under WTO: Recent Trends.” International Journal of Applied Science and Engineering 6.2 (2018): 109-119, http://www.indianjournals.com/ijor.aspx?target=ijor:ijase&volume=6&issue=2&article=003s
Lau, Lawrence J. The China-U.S. Trade War, and Future Economic Relations. Hong Kong: The Chinese University Press, 2019.
Luebe, Grant. “Tariffs: A Historical Perspective.” Corridor Business Journal 15.1 (2018): 9-9.
Powell, Bill. “The Wrong Trade War.” Newsweek, 18 Jan. 2019, www.newsweek.com/2019/01/25/trade-war-1297644.html.
Spence, Andrew Michael. The next Convergence: The Future of Economic Growth in a Multispeed World. Penguin Random House India Private Limited, 2012.