Tension increases as Donald Trump proposes significant tariffs on $60 billion worth of Chinese export, as well as the possibility to limit Chinese investment opportunities. This is in the wake of Mr. Trump’s recent complaints that the trade deficit between the US and China had grown too large.
Last year, US purchases of goods and services from China were $375 billion greater than Chinese orders from America. The 25% tariff Mr. Trump has suggested is to help reduce this deficit.
In retaliation, China plans to target $3 billion worth of US products and warns, “We are not afraid...We will certainly fight back and retaliate. If people want to play tough, we will play tough with them and see who will last longer.”
While full-out global trade war has not started, experts believe that the first steps towards it have been taken. But what does it mean for each side?
China has significant options if they are to retaliate in earnest. They could tax American farming exports, China is one of the largest buyers of US crops, that could deal a large blow. Likewise, imposed tariffs on American aircraft would hit major US companies like Boeing hard.
So far, China has taken small action against Trump and the US, but have made it clear that they are not fearful of entering into a trade war with America.
Experts believe that China will be impacted the hardest, and entering the full-scale global trade war will run more economic risk. However, the cost to either side is sure to be significant. China is in a strong position to limit the trade opportunities but the US is an essential cog in China’s economic growth.
It is possible that China is awaiting a final list of good that the US intend to impose their 25% tariff on before making their decision on how to fully progress.
Speaking on the topic, Bill Winters, Standard Chartered Bank group chief executive, commented, “We are of the view that free and fair trade is the most important ingredient for any bilateral relationship, and no one wins a trade war.”
It seems clear that neither side will directly benefit from the ongoing tensions and a resolution should be the goal for both economic superpowers. Not only this but bringing a trade war on a global scale can heavily impact less secure economies.
The World Trade Organization (WTO), through which talks and disputes are being mediated, has urged the US and China to use the WTO to agree an amicable deal. Talks are currently ongoing but it remains likely that the taxes and tariffs proposed by either side will be instigated if no agreement is reached.