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CWA # 24, 10 June 2018

Global Politics
US and China: Towards a Trade War

  Manushi Kapadia

Are the US and China moving towards a trade war?  Is the USA threatened by China’s trade growth in the global economy? Will the trade war cause problems in the global trade supply chain? 

School of Liberal Studies, PDPU, Gandhinagar & Research Intern, National Institute of Advanced Studies, IISc (Bengaluru)

On 2 June  2018, United States Commerce Secretary went to Beijing, aiming to settle the trade tensions triggered by Trump’s trade tariff. 
Are the US and China moving towards a trade war?  Is the USA threatened by China’s trade growth in the global economy? Will the trade war cause problems in the global trade supply chain? 
 
The beginning of the trade war
Earlier, in March 2018, Trump announced import tariffs of about 25 per cent on steel and 10 per cent for aluminium on China exempting its allies Mexico, Canada and EU. Later there were series of events that were carried on between the two countries. Trump on March 22, 2018, signed a memorandum in Trade Act 1974, to apply tariffs of USD 50 Billion on Chinese products. China imposed tariffs on 128 United States products including aluminium, pork, soybean, automobiles. The United State Trade Representative published a list of 1,300 categories of Chinese goods that it planned to impose levies. In retaliation the United States, China hits back with additional 25% tariff to products the United States exported the most and further led to China cancelling the trade orders.
 
Such trade war can affect a few American companies and the consumers will be forced to spend more than what they used to earlier. The prices of all the products on which tariffs are imposed are likely to shoot-up not because of the increased manufacturing costs, but because of the tariffs. Even though Trump imposed tariffs to protect American companies they will be in a tough position as the United States economy is highly dependent on the trade carried out with China.
 
Expectation v Reality 
China has shown a soft side in negotiating with the United States regarding the trade agreement. The trade agreement should focus on the bilateral, rule-based trade pacts that created open and fair reciprocal trade between two countries. While the formation of trade agreement norms, both the countries should focus on what will be the best cooperative decision so that both can benefit and take the advantage of being the world’s largest economies. 
 
Firstly, there should be an elimination of tariff and prevention of American companies from selling more manufactured goods to China so that Americans can receive employment and can become manufacture based economy. Secondly, there should be an end to the politics China is playing through this trade agreement. The USA and China trade agreement is a huge win for China economically and diplomatically as it recognizes China’s One Belt One Road (OBOR) initiative. China’s OBOR initiative can create new barriers for the United States exports. Thirdly, the United States want that China should import more American goods and stop intellectual property theft. Fourthly, the bilateral deficit should be reduced as the United States imports nearly four times than it exports to China.  
 
Effect on the allies
With the trade war going between two countries, their allies will be affected and eventually, the global trade supply chain will suffer as the economies are inter-connected. Any disturbance in the global supply chain will have a long-lasting effect on the rich and poor country’s economy as well as the foreign investors. In the manufacturing of the various goods the raw materials and technology move around the borders but with increases trade tariffs it will become difficult for China and its suppliers like Taiwan, South Korea and Japan to provide facilities they used to provide before the renewed trade tariffs. If both countries won’t put end to the trade war it will topple the global trading arrangements. Canada, Mexico and EU, the closest allies have also been badly hit by Trump’s decision of imposing the trade tariffs. 
 
Both the countries had shown signs of taking a step back to stop the trade war but in the recent meeting held on Saturday at Beijing amongst the United State Commerce Secretary and China’s top official, the delegation stayed casual and was unable to agree on any joint decision. It is difficult to predict whether the trade will come to an end or not. The last statements from the officials of both countries suggest that they are ready to take up any challenge on their way to win the trade war. 

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