Escalating Trade War And Its Damages

Escalating Trade War And Its Damages

Following Trump’s decision to increase tariffs imposed on Chinese goods from US$50 billion to US$250 billion, about 1.8 per cent of China’s gross domestic product, China again retaliated with 5 to 10 per cent tariffs on imports from the US worth US$60 billion. With the retaliatory action from China, Trump vowed to further lift the punitive tariffs from the current 10 per cent to 25 per cent, amounting to over US$500 billion.

The escalating trade war between the world’s largest two economies has raised worldwide concerns about the devastating damages as a result.

Impact On Chinese Economy

It is an undeniable fact that in this trade war, the US has more cards to play than China. The latter is unable to match the US in terms of tariffs as its imports from the US is only 25 per cent that of its exports. The Chinese Yuan has already depreciated about 10 per cent since the start of the spiraling trade friction with the US. Further depreciation will add stress to its economy, capital market in particular. With guidance from your economics tutor in the economics tuition class, explain why further depreciation of Chinese Yuan is bad for the Chinese economy. Sign up for economics tuition with a reputable economics tutor today to learn more. There a few well sought-after economics tuition centres in Bishan, including Economics Cafe Learning Centre helmed by renowned economics tutor Mr Edmund Quek.

It is unlikely for the Chinese government to target its adversaries’ companies like what it did in the past when engaging in political spats with other countries, as most of these companies have a physical presence in China and employ million of people there. The Chinese government simply cannot hurt them without hurting its own people and economy. Apple, for example, is known to be a possible target due to its dependence on Chinese market. However, it employs directly over 10,000 people and indirectly nearly 3 million through its supply chain. A ban imposed on Apple will inevitably cause repercussion on its own economy and social stability. Discuss with your economics tutor in economics tuition the likely consequence of a ban on Apple.

The immediate impact of US tariffs on Chinese economy so far has been limited, estimated to be between 0.2 and 0.5 per cent of its gross domestic product, which can be easily absorbed by the US$14 trillion economy. However, the economic costs could increase considerably over time.

Impact On Rest Of The World

According to Reuters’ report, merger and acquisition deals have declined by 35 per cent or US$783 billion. One notable case is the cancellation of Qualcomm’s US$44 billion acquisition of NXP semiconductors in July 2018, making it a high-profile victim of the escalating US-China trade war. Another planned acquisition of Rockwell Collins by United Technologies worth of US$23 billion is now in jeopardy.

A prolonged trade war will also affect the cross-border trade, which has already seen a drop by 6 per cent as compared with a year earlier. The number of new deals is at the lowest level since 2013. Your economics tutor should be able to name a few other implications of the US-China trade war on the rest of the world in the economics tuition class.

Impact On The US

The United States does not come unscathed either. The US government has released a comprehensive list of Chinese products that will be affected. It is estimated that the tariffs will cost an average American family US$127 a year. Big household names including Walmart, Coca-Cola and General Motors have announced plans to increase prices. Those trying to maintain their prices may resort to laying off employees to offset price hikes.

In closing, the world has yet to feel the pinch of the US-China trade war in full scale. It is our hope that both parties will return to the negotiation table to resolve their trade conflicts soon.

James Teo

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