The US-China Trade War: Where Will it End?

Huawei, IFA, 2018 Berlin

The trade war between the US and China that began last year has now entered into its worst phase. In 2018, the US started the trade war by imposing tariffs on Chinese products. In return, China retaliated by imposing tariffs on the US goods. So far, the US has levied tariffs on $250 billion worth of Chinese goods and China has done the same on $110 billion worth of US goods. The US-China trade war is turning into a tech cold war as the US has black listed Chinese technology enterprise Huawei. This US move has enraged the Chinese people along with their government.

Why is the US bent on taking the trade war to the new heights?

The answer is crystal clear,  the US is unwilling to let China dominate the world market. China in the last two decades made remarkable economic progress and now has emerged as the world’s second-largest economy. The pace with which China’s economy is growing, is likely to surpass the US economy. Thus, fearful of China’s advancement, the US initiated the trade war against China. Apart from that, the populist Republican President, Donald Trump assumed the Oval Office with the catchphrase “Make America Great Again.” Trump claimed that the dumping of Chinese goods to the US market is making the US industries vulnerable. Thus, the US president embarked on the design to instigate the trade war by imposing tariffs on Chinese steel. Initially, the trade war only included tariffs on each others imports. However, the trade war took another turn in December last year, when the Chief Financial Officer (CFO) of Huawei Meng Wanzhou was arrested in Vancouver at the behest of the US authorities. The arrest of the CFO worsened matters further between the US and China.

Why has the US switched to targeting the Chinese tech giant Huawei?

In recent times Huawei has garnered progress by leaps and bounds. It also excels in 5G technology and no other company in the world has such capability. China has the world’s largest population and the number of China’s mobile users hit 1.3 billion in 2015. When 1.3 billion people have access to mobiles, it is indeed lucrative business in China. However, Huawei’s business is not limited to only China, rather, it does business with most of the countries in the world. Owing to this, Huawei manages to earn much revenue and thus it came under the limelight before the US.

What repercussion does the scuffle between the US and China hold?

Since the US and China are the two biggest and influential economies, their trade-scuffle is the matter to reckon with for the global economy. Footwear giants like Nike and Adidas are urging the US president to end the war and warned him about the catastrophic consequences on the consumer. With the escalation of US-China trade war, financial markets in Asia, Europe, and the US have experienced steep declines. A full-blown trade war will also upset global supply chains, impacting countries like Malaysia, Singapore, Taiwan, and South Korea that play key roles in these supply chains. Recent studies show that tariffs have cost the US economy up to $8 billion in lost GDP. The US tech giant apple blamed the trade war for its revenue decline.

In a trade war, there is no winner. The trade war can damage the economies of both US and China. It was the US president that instigated the trade war with China. So, no one should expect China to give in, as Beijing is capable enough and has intents to retaliate US actions. China has the strength and patience to withstand the trade war, and will fight until the end if the US administration persists with it, China’s state-run People’s Daily said in an editorial. Trump should learn from his predecessor George W. Bush, who imposed tariffs on steel which resulted in inflation and the loss of 0.2 million jobs and a fall in the US economy.

However, one should expect positive development in the trade war because G-20 Summit is going to take place in Japan, where the heads from the US and China will participate and are likely to talk on trade-war. The G-20 summit can be the ray of optimism that would moderate the intensity of the trade war.

Image: Matti Blume ( via Wikimedia Commons).

The views and opinions expressed in this articl are those of the author and do not necessarily reflect the official policy or position of The Geopolitics.