International Affairs

US-China Trade War

Trade War A trade war is a type of trade Protectionism. It is an imposition of tariffs between two nations on each other’s goods. It can be said to be an economic conflict in which a country imposes import restrictions on each other. US-China-A Timeline of Trade War
US-China Trade War
Since the 1990s, China had consistently devalued its currency against the US dollar. This artificial devaluation of Yuan gave Chinese exporters an advantage in world markets which also harmed US exports. The currency devaluation results in the sale of more products due to cheap rates. As the Yuan got cheaper from the perspective of American consumers, the dollar got expensive from the perspective of Chinese consumers resulting in expensive import for China of American-made goods. This, in turn, resulted in a slowdown in the US. The US had launched an investigation on Chinese trade policies in 2017. The US imposed heavy tariffs on steel and aluminium items worth billions from China in March 2018 and China responded by imposing tariffs on billions of dollars worth of American imports. The US had demanded from China to reduce its $375 billion trade deficit with the US and more access for American goods in the Chinese market. A verifiable measure for the protection of Intellectual Property Rights and technology transfer was also demanded by America. All resulted in the escalation of the trade disputes between the two largest economies. In 2018 alone, the government of the United States imposed three rounds of tariffs on more than $250bn worth of Chinese goods. The duties of up to 25% cover a wide range of industrial and consumer items - from handbags to railway equipment. China retaliated with tariffs on $110bn of US goods and accused the US of starting the largest trade war in history. China targeted products that include chemicals, coal and medical equipment with duties ranging from 5% to 25%. Reasons for which the Trade War Started •US investment in China being restricted by the Chinese government is one of the primary reasons for such imposition of tariffs. •US blames China for stealing American intellectual property and imitating US technologies. •US President Trump believes that China has exploited the WTO-enabled global trade framework to its advantage. •China is accused by the US of disrupting the international trade system via hidden subsidies, manipulation of currency and technology theft. •China launched an initiative to transform itself into an advanced manufacturing powerhouse by the “Made in China 2025” program which is considered as protectionist policy by the US. •Trump also accused China of advancing subsidy in steel exports and termed it dumping on the rest of the world that has hit jobs in the US. Impact on the World The trade war between two of the largest economies in the world has greatly affected the global growth rate. The effect of world economies slowing down is already being witnessed everywhere. The ongoing trade war has also caused global uncertainty in the trading environment and can affect global sentiments negatively and adds to tighter financing conditions. European Union countries, Japan and Canada are expected to benefit from the rise in exports. Other countries that might benefit in terms of exports from US-China trade tensions are Vietnam, Australia, India, Brazil, and Philippines. Impact on India The US companies are setting up manufacturing bases in India apart from China that can provide them an alternative source of export in the ongoing trade war. This shall benefit India as an increase in investment in the country and the creation of jobs. There is also an opportunity for domestic companies in India to fill the gap left by Chinese products in the US market hence boost exports. There is a danger of flooding of cheap Chinese goods which will find a new market in India and hamper domestic industries here. The rise in global oil prices may widen the current account deficit of our country. The biggest negative impact could be seen on Indian Rupee which is already battling historic lows against the dollar. Way Forward The US and China need to negotiate a trade deal soon which does not seem anywhere near with the US threatening to impose fresh tariffs on Chinese products and recent accusations made by the US President on China in his UN address. As far as India is concerned it needs to tread cautiously keeping in mind its strategic relationship with both the countries.

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