Author Amir

28.04.2020 17:00

The US vs China - Who Will Come Out on Top?

USA and China Economic war

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Are the United States and China at war, and can they afford to be? Especially now with the whole world changing before our eyes? \

There is a saying: “If Germany sneezes, the Netherlands catches a cold”; it symbolizes how much of an impact the German economy and its actions have on their neighbor. Well, perhaps it can also be said that if China or the US sneeze, the whole world catches a cold. Between them, China and the US produce a staggering 40% of the world’s GDP! You don’t have to be Chinese or American to be aware that the world’s two largest economies are at odds with each other. It began on July 6, 2018, when President Trump enacted the first of many tariffs on goods entering the US from China. His primary stated reasons for this were “unfair trade practices” by China. There were grave concerns about the protection of intellectual property, made worse by accusations of cyber spying and the government’s financial assistance to the industry resulting in unfair competitive advantages. Currency manipulation cited and other less significant issues were also cited. 

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Although there is little doubt as to the validity of these complaints, it is noteworthy that President Donald Trump instigated these tariffs based on his statements. He cited China’s unfair trade practices, yet he himself did not understand how the tariffs even worked. He remarked on many occasions that he was punishing China by making them pay for the tariffs added on to the price of goods entering the US. But this was incorrect. It was the American importers who had to pay for the tariffs that were then often added to the price of goods as an additional cost. So in essence, it was the American consumer who was paying for the tariffs. Eventually, Trump had to admit this was the case, although never accepting that he had been in error. It is estimated that the increase in prices has cost American taxpayers almost 80 billion dollars, which makes this not much different than a tax increase.  

China’s response was quick and in kind as they enacted their own tariffs on goods coming from the US. This started a tit for tat back and forth between the two economic behemoths and the trade war was on.

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Arguments have been made from both views: some say the tariffs have hurt the United States more, while others maintain that they’ve caused more damage to China. One thing that’s clear is that both sides have felt the impact and they finally worked out a deal to at least attempt moving towards a resolution. This was  initially set up in two phases with phase one to begin on February 15, 2020. But so far nothing has happened. This has been blamed on the Coronavirus outbreak and now all negotiations are at a standstill with no timeline or end in sight. 

The details of this dispute are complicated and it is difficult at times to determine who’s telling the truth. But like so many disputes, there comes a time when we must ask ourselves:  the fight itself causing more harm than what they are fighting for? Especially now that the conflict has taken a sharp turn with this new opponent entering the ring: the Coronavirus. The way they reacted to the pandemic is perhaps an appropriately tragic example of how China and the US deal with each other diplomatically. It is generally accepted that the outbreak began in China. At one point, in the beginning, Chinese officials claimed that the virus was introduced to their population by the US military personnel and even engineered by the military. Later, some United States ‘sources’ stated that there was a Chinese laboratory experimenting with Coronaviruses on bats and other animals and that it somehow got out of the laboratory and infected the general population. Neither of these claims has been proven -  independent labs have concluded that the virus occurred naturally and was not manufactured by man. 

China was the first to be affected by the virus and is now considered the first to be, slowly, emerging from this. There are those who believe that this may play to their advantage as they will be among the first to ramp up their manufacturing again and be the early bird who gets the worm. But will they actually be able to profit from this position? This seems unlikely since their number one market, the US, is currently in the throes of the Corona ‘cycle’ with mounting infections and deaths that have vastly surpassed those of China. The effect on the US economy is already being felt with record millions of workers losing their jobs and filing for unemployment. So will there be a market for all the goods China is producing to export? And as this virus has spread worldwide, it means that China’s other markets have also been severely affected. 

With no end in sight to the trade war and both of the world’s top economies reeling from the impact of the Coronavirus devastation, what’s next? An argument can be made that with the drastically reduced travel between nations and the increased costs associated with shippingsome nations may turn inward and look for more domestic solutions to their supply needs. 

Because of the trade war, many US companies had already been looking for alternative sources for their manufacturing needs, a process that has been referred to as ‘decoupling’. This is potentially an even greater threat to China’s economy than the tariffs or the Coronavirus. With many people blaming China for being the instigator of the trade war and then the source of the pandemic, it gives companies an even greater incentive to take their business elsewhere. 

China’s unemployment has also been rising dramatically. The trade tariffs have caused a decrease in exports to the US due to the resulting higher prices and this has caused many workers in factories to lose their jobs. Add to that the layoffs due to the Coronavirus and  that exports will be reduced further.

It is doubtful that a victor will emerge from this ‘war’ because whoever falls will most likely take the other down with them. 

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