The world’s two leading economies – the United States and China, recently fired the opening shots in a trade war. How wide-ranging could the consequences of the war be for consumers, workers, companies, investors and political leaders? What implications does this have for emerging markets like Africa?
International relations scholars describe relations between the United States and China as very strong and at the same time, complex. The two economic giants have an extensive economic partnership, due to the significant volume of trade between both countries. This creates room for some sort of positive political relations, however interspersed with significant rivalry emanating from economic competition and other interests.
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It’s therefore a relationship of economic cooperation, hegemonic rivalry in the Pacific and mutual suspicion over the other’s intentions. Both nations see each other as a potential adversary whilst at the same time being an extremely strong economic partner. The recent trade war between these two economic powers only go to further substantiate the complexity of Sino-American relations.
What is the trade war all about?
In early July 2018, the U.S. President Donald Trump, in a bid to protect the intellectual property rights of U.S businesses, imposed tariffs on $34 billion worth of Chinese goods. According to Trump, this new tariff policy also aims at ensuring national security and to help reduce U.S. trade deficit with China. April 2018 also saw Trump imposing tariffs on steel and aluminum from China, Canada, and EU countries.
— Brendan (@AshbourneEconA2) July 20, 2018
In a tit-for-tat response to the recent tariffs, China also imposed equivalent tariffs on U.S. products. It has now become a trade war between the two nations as they both battle for supremacy. There are fears of an obvious spillover effect of the backlash to other nations which are trading partners of both countries.
Since August 2017, the Trump administration has been on a formal investigation into attacks on American. This also include allies’ intellectual property. Statistics show that this act of theft has been costing the U.S about $600 billion annually, excluding the losses by her allies.
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What President Trump wants from the USA-China trade: equal and fair trade relationship!
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Donald Trump says he is relying partly on Section 301 of the Trade Act of 1974. He wants to stop claims of China’s unfair trade practices and theft of intellectual property. Of course, the 1974 Trade Act empowers the president to unilaterally impose fines on defaulting trading partners. It also includes penalties on any partner who is seen to be unfairly harming US business interests.
But how is the trade war affecting both countries?
The trade war is already having a negative impact on both countries and other nations of the world, especially in Asia and Africa. There are expectations that things will get worse if there is no change. Some Chinese products have been hit with a 25% tariff. They are therefore 25% more expensive for US and other global consumers.
These include technology goods like semiconductor chips assembled in China. They’re consumer products in use everyday life like televisions, personal computers, smartphones, and cars. Also included are a wide variety of products ranging from plastics, nuclear reactors and dairy-making equipment.
Dear Consumers & Pensioners:
ICYDK, when @POTUS started trade war w/ China, the Tariff imposed is paid by you the Consumers, a Consumer Tax on Americans, not paid by China. Retaliation by China affects the Stocks that fund your pension. Trump is Clueless, Ignorant & Dangerous
— Junji Tatsuno (@jtatsuno) April 4, 2018
The Chief Economist of the Development Bank of Singapore (DBS), Taimur Baig, says a full-blown trade war between US and China is dangerous. It could cut 0.25% off the GDP of both economies this year and the figure would get worse next year.
Both countries may witness a reduction in growth of about 0.5% or more due to this trade war. This fall in growth rate can be more damaging for the US if her growth rate is lower than that of China.
Effect on developing markets?
Disruption in the supply chain as a result of the trade clash may also affect Asian economies. This include countries like South Korea, Singapore, Taiwan which are major economic partners to these two nations. It may also negatively affect African consumers of manufactured commodities from these two nations.
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“China is a hub where products from the rest of Asia are assembled and re-exported to the Western world, especially the U.S.,” said Inan Demir, senior emerging economist at Nomura International.
“If Chinese-origin products are subject to tariffs, the likelihood is that other countries will have less room to export to China, because the final destination of those products is the U.S. and also because Chinese growth will slow down.” He added.
Despite the general negative impact of the trade war on emerging markets, analysts argue that there are also significant long-term opportunities for them once the political tides turn again. An example of such emerging markets is South Africa.
Trump backpedaling on tariffs
In a bid to reduce the negative consequences of similar tariffs imposed on the EU in April 2018, President Donald Trump and European Commission President Jean-Claude Juncker have reached an agreement.
— MoneyWeek (@MoneyWeek) August 2, 2018
The two leaders came into an agreement recently to work towards eliminating tariffs and barriers on trade. It is still to be seen how the implementation of the agreement will go. This is because of Trump’s stubbornness in pursuing his new protective policy.
Nevertheless, economic experts have continued to argue that China is not the biggest loser in the US-China trade war. Rather, US consumers and other countries who largely depend on basic consumer goods imported from China are the biggest losers. The situation therefore presents itself as that of two elephants engage in a fight while the grasses suffer.EN FR