A quick glance at your household items will reveal a district feature, at least of them will contain the tag – ‘Made in China’. Indeed, China is the world’s largest exporters of goods, accounting for almost $2 trillion per year. A quarter of such exports are imported by the United States, which includes an array of products including raw materials (e.g., steel and aluminum), technology goods (e.g., semiconductor chips found in TV’s, computers and smartphones), plastics, and dairy making equipment’s. In fact, the U.S. conducts more than 60% of its imports from China, which has resulted in a massive $375 trade deficit with the Asian giants.
The U.S. president Donald Trump has always maintained a strong rhetoric against the ubiquitous use of Chinese products in the American market, which he believes, undercut the value of U.S made products. In a wild attempt to reduce the deficit and bring back confidence in American goods, the Trump administration, on June 2018, slapped a 25% increase in tariffs across $34 billion worth of raw materials imported from China, with the number expected to rise to $50 million by the end of July. Trump doesn’t want to stop there, and plans on further imposing a 10% hike in tariffs on $200 billion worth of Chinese imports soon after. This hasty decision by the Trump administration has send shockwaves across the world, as they await the economic turmoil that might arise as a result of a trade war between the two largest economies of the world.
As Trump predicts that slapping tariff on Chinese imports might help reduce America’s trade deficit, many economists have suggested it’s not as straightforward as he thinks. A countries trade balance is a result of several factors – including government tax on its citizens, its spending policy and most importantly the savings and investment by businesses and households. A change in trade policies might look like the easiest solution on paper, but will result in massive secondary disruptions across the country.
One such obvious disruption might occur as a result of China’s retaliation, as the Chinese decided to impose tariffs on American exports like agricultural produce and automobiles. As the American farmers and ranchers take a hit as a result of the Chinese backlash, it’s estimated that around 250,000 U.S. workers are set to lose their jobs. The working class population constitutes a major portion of Trump’s supporters, and losing their job will result in lower number of people voting for Trump during the 2020 election. While as many as 4 million Chinese workers could also be laid off, President Xi can diffuse the political backlash by calling Chinese people to do their duty and resist American aggression. Such a sentiment will not work in America, as they won’t embrace the economic hardships that might eventually occur.
As the semi-open market that exists between the two economic superpowers might potentially shut down, the market of many other countries might undergo recession as well. Countries such as South Korea, Singapore and Taiwan could suffer a drastic hit as a result of the disruption of supply chains. China is the 2nd largest importer of goods as well, importing raw materials from other Asian countries to build products that eventually gets sold to the U.S. A dent in its export will affect the countries whose economy depends on exporting to the Chinese. Overall, the present trade route, as we know it, might collapse as a result of the trade war between the two economic superpowers.