Free Essay on the Effects of a Trade War Between the United States and China

In the current context of rising state of protectionist rhetoric, there are potential impacts of trade wars erupting by the move by the US to change their trade policies. It is important to note how the trade wars will hurt the trade environment of emerging countries and distort trading systems globally unless the US comes on board due to its global economic influence on other countries. The beginning of 2017 after the end of 2016 had dramatic shifts in the picture of global trade. This was after the referendum of the British to exit the United Kingdom from the EU known as the Brexit. This was followed by the election of Donald Trump who made protectionist statements during his campaign, in particular, referring to the relation of the US with China. He appeared to threaten China, Germany, and Mexico with the imposition of import duty tax. This was an impose tax of 35% and 45% on Mexican and Chinese imports to US jobs from foreign competitors. This resulted to a Trade war affair between the United States of America and other countries, China to be specific since they will most be affected by the tax imposition. Therefore, this work aims at looking at the possible effects of the trade war, who will win or lose and the future look of the trade war and the economy of the US (Bouet & Laborde, 2017).

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What are the positive and negative impacts of a trade war?

The most likely positive and negative impact of this trade warfare is that both parties will economically gain and lose from the tariffs created. In addition to this, the tariffs created will affect other growing economies globally since the two parties involved in the warfare are large economies that other developing economies depend on. In the recent weeks, there has been an intensification of tension between China and the US regarding the bilateral trade. The United States announced a tariff imposition in March on aluminum and Steel imported products from China. Even if the tariff did not target China directly, the exportation of China's steel and aluminum to the US will decrease significantly due to the changes in tariffs. This instigated a response from China by levying its tariffs on approximately $3 billion in America goods ("Trade War with China Has No Winners", 2018). As a result, in April, the US announced a projected tariff impose of 1300 goods from China that translated to a worth of about $ 50 billion that was a response to the Chinese unfair trade practice. This practice was linked to the forced transfer of the US's intellectual and technological properties. This led to another Chinese response of adding tariffs on 106 products from the US that entailed agricultural, aircraft, automobiles and chemical products totaling approximately $ 50 billion. This clearly shows that both countries, large economies in the world will gain and lose economically.

With the announcements notwithstanding, it is still early and premature to determine the start of a full-blown trade war between the two world economies. The tariffs imposed on China have not yet taken effect, same as the changes made on the American products to China. The US has subjected the tariffs to a public debate and opinion carried out by the trade representative on which goods should be dropped from the list. Despite this move by the US, China has not announced the date their tariffs will take place. However, there is a possibility of these tariffs being rescinded if the negotiators present reach an amicable agreement on the manner in which the trade tension between the two countries will end. If these tariffs take effects as planned and announced, there would be an economic trade shock between the two economies that will in the long-run affect developing economies depending on China and Us for economic support.

The Chinese tariffs aimed the America agricultural, automobile, chemical and aircraft products. Having this in mind, in 2016, the American agricultural exports to China totaled to a net worth of $ 20 billion accounting for about 26% of American industry exports. Other significant exports included the aircraft, motor vehicle, and chemicals that had a $ 15, 11 and 13 billion worth respectively. Therefore, this warfare would affect the US negatively since there will be a devaluation of exports leading to the lowering the industrial exports. On the other hand, the Chinese account for a lower percentage in terms of their exports to the US; however, the agricultural exports by the US have significant impacts to the Chinese economy due to the dependence and exposure to China ("Economics Group", 2018).

Who would win and why?

The currently projected result of this trade warfare will be beneficial to the United States than China. Due to the reciprocation measure in past weeks, the US and China authorities may not stop this retaliation and tariffs announced. In the coming days, there are possible chances of further retaliation that would see both countries trade affairs declining despite being members of the World Trade Organization (WTO) (Bouet & Laborde, 2017). In the worst situation, China and the US would levy increased tariffs on every goods and product that they export.

US exports to China increased by a 13% average growth last year that translated from $ 16 billion to 130 billion. This made China a fast-growing export market for the US over a couple of decades. In the same scenario, China accounts for only 8% of exports to America. In addition, there is only a 0.5 % of value added embodied in the US's exports to China that adds into the American economy. On the other hand, China exports to the US amounted to $ 430 billion last year representing a 19% of the exports from China to the US. These exports translate to a 2% of the total added value I China despite the service sector being less important in terms of the value added in China than in the US. In this scenario, China has a potential of losing much from the trade warfare than the US ("Economics Group", 2018).

From a macroeconomic perspective, when measuring the total industry output in terms of percentage, the exposure to Chinese market appears manageable. For instance, the gross output of primary and agricultural products totaled to $ 428 billion in 2016. Consequently, there was a less representation of exports to China by less than 5 % of the total industry's output shown in graph 1. The aircraft, chemical and motor vehicle industries accounted for a 4.6, 1.7 and 1.6 %. The exports of these four industries to China only represents 2.6 % of the total output of these American industries that account for less than 5% added value in America. Therefore, the tariffs imposed by China on these four industries would have no significant effect on the US ("Economics Group", 2018).

Outlook on the Trade War and the U.S. Economy

The outlook of the China-US trade war seems not to end in the near future. This is due to the reciprocation of the tariffs on products exported by the two countries. Therefore, it is yet to be determined the effects and the nature of the tariffs of the two largest economies in the world. However, in case of the implementation of these tariffs, there would be a significant change in the business environment making the trade market to be more challenging in the motor vehicles, chemicals, aircraft and agricultural sectors. Therefore, is China Levy tariffs on the goods, there would be a small shock in the US economy that will be realized in the end just by a smaller margin of less than 5 %.

References

(2018). Retrieved from https://www.clearbridge.com/content/dam/clearbridge/news-assets/2018/PDF/blog-trade-032318.pdf

(2018). Retrieved from https://www08.wellsfargomedia.com/assets/pdf/commercial/insights/economics/special-reports/trade-war-20180405.pdf

Bouet, A., & Laborde, D. (2017). US Trade Wars with Emerging Countries in the 21st Century: Make America and Its Partners Lose Again.