The trade war between U.S.A and China got real on Friday, with Trump imposing tariffs on $34 Billion worth of Chinese imports. China immediately retaliated by threatening to impose tariffs on imports from the U.S. This may tempt Trump to further increase tariffs.
The effect: Trade war between the U.S. and China will harm the World economy.
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On April 4th 2018, U.S. President Donald Trump tweeted that the U.S. was not in a trade war with China. He says that imposing tariffs is a way to make up for the U.S. trade deficit of $500 Billion a year. Trump also accused China of theft of Intellectual Property worth $300 Billion.
While the U.S. accuses China of trade abuse and blames it for the trade deficit and loss of U.S. manufacturing jobs, China accuses the U.S. of blackmail following the U.S. demands to stop subsidizing Chinese firms under Chinese President Xi Jinping’s plan to make China a leader in key technologies by 2025.
The trade war between U.S. and China is only going to get uglier. When two enormous Nations have sour relations, a major part of the World is going to suffer. This is because companies affected by import tariffs will try to make up for their increased expenses, by raising the prices of goods. This has global effects.
The U.S. has already targeted $34 Billion worth of Chinese imports. In two weeks time, another $16 Billion worth of goods may be added to the list. Trump reveals that the final total value of imports exposed to tariffs can reach $550 billion. The catch is that Trump is planning to levy import tariffs on a figure of ‘$550 Billion’ which exceeds what China exports to the U.S. in a year.
Starting at 12:01 AM, 6th July 2018, U.S. customs officials began collecting 25% tariffs on Chinese imports. Goods that made it to the list were farming ploughs, semiconductors, aeroplane parts among others.
China vowed to fight back immediately, taking aim at the U.S. auto sector and agriculture. American companies like Ford, Tesla and Daimler will face an additional 25% tax. Soybeans and Pork have also made to the list.
Though the U.S. and China have bilateral trade deficits, the U.S. imports much more from China. This puts America at a pole position in a tariff dispute. China, on the other hand, can slap U.S. companies operating within its boundaries with customs delays, tax audits and strict regulations.
In a bid to protect the nation and its people’s interests, in the month of March, the U.S. imposed tariffs of 25% on steel and 10% on aluminium imports on its allies European Union, Canada and Mexico. The EU retaliated by imposing tariffs on American exports like Bourbon, rice and motorcycles, and Mexico targeted products like fruit, cheese and lamps.
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This totally depends on how far the trade war goes. If both countries stop after the first round of imposing tariffs, the trade war might not backfire and impact on their economies will not be too significant. But if the U.S. decides to initiate a trade war with all other countries and they retaliate, U.S. growth would slow by 0.8% around 2020, say the Economists at Bloomberg.
The economists at JPMorgan Chase & Co. see the effects of this trade war as having far-reaching consequences. They say that the indirect impact of this trade war might tighten credit conditions, affect business confidence and shrink the scope for investment and hiring.
Imposing tariffs on imported products can result in the shooting up of prices in many sectors. For instance, Toyota warned that if it couldn’t import cheap steel for its U.S. factories, prices would increase considerably. This would decrease the demand for cars and pose a risk to the U.S., as it is a consumption based economy.
Also, even if the U.S. plans to cut down imports of steel and aluminium and encourage increased domestic production of the metals, the costs would be higher than the imported metals. This will finally pass on to consumers in the form of increased prices.
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