In conventional term, trade war starts when a country imposes tariffs on imported goods on foreign countries and similarly, foreign countries retaliate it with imposing further tariffs and invoke policies like ‘trade protectionism.’ Tariff is a form of tax imposed on imports or exports between sovereign states. It regulates foreign trade. It is also a policy that can be used for foreign products so as to encourage or safeguard the domestic industry.
The United States (US)-China trade war that was started on the July 5th, 2018 prompted the Trump administration to impose tariffs on $250 billion worth of Chinese products. However, such coercive and prompt policies of the Trump administration is likely to cause a damaging impact upon companies and consumers both in the US and China. President Donald Trump had already advocated for imposing tariffs and other trade barriers on Chinese goods during his presidential campaign. His concern was to reduce the trade deficit, which had allowed the Chinese government to take billions of dollars from the American economy.
He has also accused China of unfair trade practices and theft of intellectual property rights. The US trade deficit of $621 billion with China has raised an alarming crisis in the Trump administration. His declaration was that such tariffs would encourage domestic production and consumption infusing the economy with growth. Furthermore, Trump has also articulated that it would generate employment in the manufacturing sector. The Chinese government had retaliated with tariffs on American goods. It has imposed tariffs of $110 billion on American goods. It had imposed tariffs on pork, soybeans and automobiles, amongst other goods.
The backdrop of the trade war started due to a number of allegations of unfair trade practices, illicit access to the technology of the American companies, theft of intellectual property rights by the Chinese government. US trade representative Robert Lighthizer had opened a formal investigation against China in regards to alleged unfair trade practices, which cost the American economy about $225-600 billion a year.
Furthermore, in regards to the foreign direct investment, it is alleged by the Trump administration that under Deng Xiaoping’s economic policies foreign companies are not allowed to enter some sector of the Chinese market unless they establish a joint venture with the domestic companies, which owns the majority of the business. It allows the Chinese companies to directly use the right of intellectual property, which in turn be used to produce domestic products based on it.
The Trump administration is waging trade wars on various countries by imposing tariffs on foreign steel, aluminium, solar panels and washing machines from countries like Canada, Mexico, the European Union and Japan. But the trade war with China is going to cost American companies more, which are dependent upon global supply chain than the Chinese companies.
Such tariffs have impacted upon firms like Husco International, a Wisconsin based manufacturing company that makes parts for companies like Ford, General Motors, Caterpillar faces a 25 per cent increase on a variety of parts imported from China. It has put the company at a disadvantage position. The trade war has also affected the agricultural sector. The trade war has pushed down the prices of soybeans by 15 per cent and reducing the yearly profit margin of 8 per cent to 10 per cent.
President Trump can be termed as ‘semi economic dictator’ in his economic decisions by imposing tariffs on Chinese goods. Trade war may have benefits for a short-run period of time, but it has a long-term bad impact upon the economy as well. The current economic situation in the US is grim. Trump’s decisions have already raised the prices of automobiles, computer chips, soda and beer, and heavy equipment. The US exporters of agricultural products like bourbon, cheese are suffering as foreign markets have diminished under retaliatory tariffs. Companies are also cutting jobs as well.
The trade war may lead the US and its allies to a great recession. It has also caused a similar effect on Chinese manufacturing and industrial sectors since the US is a major market for Chinese producing goods. Though the Chinese goods have captured most of the South-Asian countries as well as some African countries, the vast producing and manufacturing goods of Chinese products certainly will come down unless there is no trade reconciliation, then this trade war indirectly affects the entire world economy. Russia has now close alliance with China, and the Middle East is in turmoil, so if any country’s economy is badly affected than the history says the war would be imminent.
The author is an advocate, practising in the Gauhati High Court. The author can be reached at firstname.lastname@example.org. The views expressed by the author are personal and may not in any way represent those of TIME8.