The economic environment is embroidered by many of the inescapable experiences that have put countries and individuals at loggerheads with each other. The trade war between the United States and China is one of the contentious economic issues being experienced currently. One would wonder which between the two world superpowers is likely to suffer most as a result of this. It would, nevertheless, be prudent to assess the situation to determine what caused the initiation of this conflict and also determine the likely consequences that have already resulted from this and also those that are likely to occur in the near future. Moreover, further examination of the possible solutions to the conflict would be instrumental.
Cause
China is one of the few nations capable of producing a large volume of consumer goods at substantially lower prices compared to other nations. The U.S felt that it is only fair that they receive relatively low prices for these commodities since a great majority are created out of raw materials sent out to the Chinese owing to the low cost assembly present within the country. This is a situation that has been made possible the low cost of living which ascertains that low wages are paid to workers, and also the existence of an exchange rate partially fixed to the dollar (Amadeo, 2018). Besides, the $222.6 billion trade deficit available as a result of the high value that Chinese got out of their imports as opposed to U.S. exports to the country further exacerbated the issue.
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The Situation
The trade war between China and the U.S. is as a result of the increased tariffs that the latter country decided to impose on the former. Signs of its existence began during President Donald Trump`s campaign when he indicated that his government would impose 35%-45% tariffs on all imports to China in a bid to force them to renegotiate the current trade terms (Amadeo, 2018). The war became a reality at the beginning of 2018, when additional tariffs were sanctioned on the goods as had been indicated earlier on. President Trump directed for a list of goods worth $200 billion to be released, out of which tariffs will be increased. First of all, a 25% trade tariff was to be imposed on the goods. China`s response was the enticement of European business community with an intention of improving access and investment terms (Amadeo, 2018).
On July 6 2018, a directive was received from the White House requiring an immediate imposition of 25% tariff on $34 billion worth of items (Amadeo, 2018). This prompted China to match the U.S. tariffs by initiating similar tariffs especially those that affected U.S. soya beans. Some of the goods that the affected American-Chinese imports were steel, aluminium and agricultural commodities (Amadeo, 2018). This occurred on March 23 2018, and it greatly affected steel exporters to the U.S. Chinese responded to this on April 2 when new tariffs were introduced on a category of 128 commodities such as: fruit, nuts, and steel pipe. On April 3, a newer list containing up to 1,333 products was generated by the U.S indicating the products which would have tariffs imposed on them. By April 5, the U.S President was already feeling the effect of Chinese retaliation and termed it as an unfair practice. He also stated that he had sought guidance regarding whether tariffs on additional commodities worth up to $1000 billion would be necessary.
Soon afterwards on June 16, 2018, the Chinese government made a public announcement that similar tariffs to those imposed by the U.S government would be initiated. This involved tariffs imposed on 545 U.S category goods which were worth up to $34 billion (Stewart, 2018). Also, an additional $16 billion of goods was to be added to the list thereafter especially that pertaining to crude oil and coal (Stewart, 2018). This notwithstanding, on June 15 2018, President Trump offered an additional directive for taxes to be imposed $50 billion worth of Chinese products. This came after assertions were made regarding longstanding theft by Chinese entities (Stewart, 2018).
Things, nevertheless, became intense on August 1, 2018 when the U.S. trade administration officials advised the president to impose additional tariffs on Chinese imports. Chinese were not eager to back-down and in the process indicated that they would initiate counter measures to cater for the increments; all in an attempt to defend their nation`s dignity. At this point, fears of an impending dispute arose and this led to other events which were to follow later on. Moreover, the Chinese currency was at its lowest point ever.
Consequences
It is apparent that there is no real winner in the trade war initiated between China and the U.S. The new tariffs introduced by both nations are likely to affect both sides in equal measure. Already, this war has managed to decrease the value of the Chinese currency. Moreover, declines in the Gross Domestic Product (GDP) and real exports are much more likely. Besides, the issue has also managed to cause additional problems to other countries owing to the decrease in demand for their commodities. In this case, an overall decline in the global growth of the economic is highly likely to occur. In an economic perspective, it is apparent that the World trade is bound to suffer to a greater extent in the protectionist environment. Also, the current trade war is happening at a crucial moment when the prices of oil are on the rise thus resulting in a reduction in global growth.
Solution
A lot of pessimism has reigned over the existing conflict between U.S. and China with many indicating that a solution is out of reach. This is especially so because, the U.S. has persisted in politicizing the trade matter and has also been very reluctant to hold talks with China. For instance, Peter Navarro, the U.S. director of trade is not competent enough to handle the issue. Based on the idea that he has never been involved in negotiations before, it is no wonder that he is unwilling to hold talks effectively with the Chinese government. In this case, it would be advisable for President Trump to take charge of the entire situation to prevent it from blowing out of proportion.
The White House also has to realize that the current stalemate is unwarranted and uncalled for. There are numerous ways that they can seek to address their concerns. For instance, the government can opt to seek for assistance from the World Trade Organization (WTO) (Amadeo, 2018). Since joining the WTO in 2001, China has upheld and accepted rulings made by the organization, and is, therefore, likely to adhere to the same (Stewart, 2018). This is due to the fact that both China and the U.S are equals in the economic aperture and, therefore, it is highly unlikely that both nations would accept to relinquish control. Also, America`s requirement for China to purchase more American commodities while dwelling on China`s violation of intellectual property rights is not likely to contribute to any benefit. Moreover, other issues such as the cyber-enabled commercial thefts which the U.S alleges is caused by China are preposterous and just but a matter of optics.
Also, another amicable approach to end this conflict is the incorporation of dialogue between the U.S. and China. Though this is currently an ongoing process, it would be advisable for the two nations to seek arbitrators in the event they fail to arrive at an agreement. Besides, common ground rules or bases have to be established stipulating trade requirements that are binding and beneficial to both parties. Politicizing the issue is only likely to reap more discord and further escalate the current situation. When a similar situation occurred to Japan when a 100 % import tariff was imposed on their imports by the U.S, the nation gave in to the demands (Solis, 2017). The Chinese government could opt to do the same, however, the President Trump`s administration should have something to offer to the China in order for them not to appear like they have given in to the bullying.
Conclusion
The current trade war between China and the U.S. is currently one of the most hotly debated topics. This was a conflict initiated by the U.S. by imposing higher tariffs on China in a bid to ensure that they meet their demands. China, nonetheless, chose to retaliate by acting in a similar manner thus further escalating the dispute. This disagreement is likely to not only devastate both countries but also have a detrimental impact on the world economy. One way to resolve the conflict is through dialogue. Also, China can choose to give in to the demands made by the U.S though this could only be acceptable in light of the fact that they are offered something in return. Moreover, soliciting for assistance from the World Trade organization is also another way that this dispute can be resolved. Finally, it is the high time that an amicable solution was attained not only to resolve the current dispute for the well-being of China and the U.S but also for the betterment of the entire world at large.
References
Solis, M. (2017). Dilemmas of a trading nation: Japan and the United States in the evolving Asia-Pacific order.
Stewart, E. (2018, July 8). Can the US-China trade war be stopped? 11 experts weigh in. Vox media . Retrieved from https://www.vox.com/policy-and-politics/2018/7/8/17544460/trump-china-tariffs-trade-war.
Amadeo, K. (2018, November 21). “US Trade Deficit With China and Why It`s So High.” World Economy. Retrieved from https://www.thebalance.com/u-s-china-trade-deficit-causes-effects-and-solutions-3306277.
