China and the United States have locked horns in an ongoing trade war as each country has introduced tariffs on goods traded between each country. China was forced to retaliate after President Donald Trump, quoting “China’s longtime abuse of the broken international system and unfair practices,” imposed tariffs on solar panel imports (a high percentage of which are manufactured in China) and other Chinese goods amounting to a whopping $250 Billion USD. The question however, is whether Trump’s motivations and actions are financially sound, or will Trump’s decision leave both parties worse off?
Trump’s decision to embark on this trade war is warranted for sure. As he very rightly mentioned on the campaign trail, the US is plagued by a $500 billion trade deficit with China, with intellectual property theft summing to another $300 Billion. As we all know, Trump’s rhetoric before being elected mainly enticed blue-collar workers, so it makes sense that now, once in office, he appeases said workers by keeping jobs in the US and imposing tariffs on exports from China, which means that, to lower costs, American companies must produce inside the US. This creates employment, which is in need seeing that there has been a steady rise in the unemployment rate starting in June of this year.
Listening to Trump, however, you’d be forgiven for thinking that the relationship is totally one sided. This viewpoint, unfortunately for him, is gravely mistaken. The US has also reaped multiple rewards in China; many technology companies situate their headquarters in China due to cheap labor and rampant innovation. Boeing, for example, sells more planes in China than anywhere else on the world. And, it’s not like China has been caught quaking in their boots. Xi Jinping’s government swiftly retaliated with import levies on US-grown soybeans, medical equipment and most importantly, crude oil. Worst of all, the impacts of this back and forth are drastic. Oxford Economics, a consultancy, forecasts that each country will endure a loss of $60 billion dollars as a minimum. The Peterson Institute for International Economics, a think tank, concludes the US-China tariff war “will be self-destructive for both sides.”
The motivations are clear for this trade war; a gargantuan trade deficit and a sentiment that China is “cheating.” However, it is also possible, worryingly, that this may all be a ploy employed by Trump to halt Chinese growth. China’s expanding day by day, and may soon overtake the US as the world’s superpower. However, both countries need to realize that continuing this war will ultimately result in mutually assured destruction.