affected. The same applies to Chinese consumers and producers,
particularly since about half of Chinese exports are made by
enterprises with foreign investors.
The situation for the US is risky. China’s foreign currency re-
serves now stand at more than $3 trillion. In contrast, the U.S.
has foreign exchange reserves roughly around $120 billion.
Trump’s tariffs would automatically trigger penalties against the
U.S. in the World Trade Organization (WTO), and might even
lead to the WTO’s collapse, which would lead to higher tariffs
against U.S. exports. While it might take a while for that to hap-
pen, the turmoil would be catastrophic for American business
and employment. China, on the other hand, would emerge rela-
tively unscathed. To be more specific, the impacts of trade war
on Chinese economy is less severe than American to some ex-
tent but still influential. Two gauges of activity in China’s manu-
facturing sector worsened in September, reflecting the nation’s
economic slowdown and fallout from the trade war with the
U.S. The official manufacturing purchasing managers index
stood at 50.8 in September versus 51.3 in August, lower than the
median estimate of 51.2 in a Bloomberg survey of economists.
Meanwhile, the Caixin manufacturing PMI, which better reflects
sentiment among smaller, private firms, declined to 50 from
50.6, the lowest since May 2017. A reading of 50 is the dividing
line between expansion and contraction.
In conclusion
But far from the US and China coming to the table and forming
an agreement to open up trade, more trade barriers could be
announced with growing economic damage and no resolution in
sight. President Trump may even show his dissatisfaction with
the body that oversees international trade, the World Trade Or-
ganisation, which he has described as a “disaster”, and pull
America out. That would potentially overturn the whole world-
wide trading system with dire consequences. So it’s critical that
a US-China trade war is avoided at all costs.
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