What is a Trade War?
A trade war occurs when countries try to damage each other's
trade, typically by imposing tariffs or quota restrictions. Some
economists agree that certain economic protections are more
costly than others, because they may be more likely to trigger a
trade war. For example, if a country is going to raise tariffs,
then a second country may similarly raise their own tariffs in
retaliation. Poor countries are usually more vulnerable than rich
countries in trade wars. By raising protections to prevent their
markets being flooded by cheap goods, the government of a
poorer country risks making those goods too expensive for its
people to afford.
The Current Relationship between China and the USA
The relationship between China and the United States is quite
strong yet complex. The US and China have an extremely exten-
sive economic partnership, with a great amount of trade be-
tween the two countries creating somewhat positive political
relations, yet significant and sensitive issues remain. It is a rela-
tionship of economic cooperation, hegemonic rivalry in the Pa-
cific and mutual suspicion over the other's intentions. There-
fore, each nation has adopted a wary attitude regarding the oth-
er as a potential adversary but also an extremely strong eco-
nomic partner. It has been described by world leaders and aca-
demics as the world's most important bilateral relationship of
this century.
The Trade War
After Donald Trump won the presidential election, the slogan
‘America first’ had become the focus of the most important poli-
cies of the White House in global diplomacy. Donald Trump is
attempting to gain votes from workers as restrictions are to be
implemented on China, which would affect a combined $100bn
worth of trade in June of 2018. American government claimed
that Chinese businesses violated the intellectual property and
patents. Afterwards, Beijing announced it would retaliate
against new US tariffs. China’s finance ministry said it would
begin imposing its own 25 per cent tariffs on 545 categories of
US products worth $34bn including soy beans, beef, whiskey
and off-road vehicles on July 6. It also threatened to add a fur-
ther $16bn later, targeting US energy exports such as coal and
crude oil. In fact, this is the second round of trade world be-
tween the world's two largest economies. It’s more realistic and
severe than the earlier time in 2018.
The Impact of the Trade War
Tensions between the US and China could go beyond taxes and
directly disrupt global supply chains as investment is targeted.
Any disruption to supply and distribution chains - a key part of
world trade - could have a lasting impact. In the worst-case sce-
nario, companies may have to relocate factories or distribution
centres. Investment decisions affect employment and taxes
raised, and are in some ways more disruptive than tariffs, which
can be reversed more easily. This escalation would be damaging
for the US and Chinese economies as global companies, such as
Apple, invest in both countries. This would affect not only US
businesses but also American consumers. Retailers such as
Walmart import goods from China, so prices would go up and
living standards may be negatively affected. And since US goods
are sold worldwide, if they are reliant on parts from China, con-
sumers here in the UK and in the rest of the world would also be
The Impacts of the Trade War
Between the US and China
Peter Zhao
Article written May 2018
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