Will US-China Trade War Fall Upon America?

Last updated on July 22nd, 2019

Trump may be attempting a strategic gamble in an attempt to save the American honor, but could he be also playing with fire by prolonging a tariff spat with China; gradually capable of crippling the US economy?

Early last week, a White House order added fire to the already furious US-China trade war by initiating the ‘Google-Huawei ban’. US President Donald Trump’s administration in its order, restricted all American firms from doing business with the Chinese telecom giant, Huawei, escalating the trade war. However, the White House-led ban flipped 360 degrees as China responded with an assertive approach in return. The world’s largest telecoms gear maker indicated the introduction of a self-developed OS by the end of 2019. A reality or not, the narrative did help reduce the market impact of the end of Huawei-Android affiliation.

Though suggested by many, China refrained from retaliating against America by boycotting Apple. In fact, Huawei responded with a self-reliant approach; displaying independent technology as a solution to overcome the ban and challenge Apple, instead. Considering the fact that China has a weaker hand in the dispute, it was least expected from the East Asian country to retaliate in the same manner as US.

The Google-Huawei ban on the other hand, may gradually introduce the American market to a greater economic loss, than it would introduce China to. Huawei will still hold the market for a fairly large period of time, even when all US firms initiate the replacement of its products and services, giving Huawei ample buffer time to tackle the deadlock. Meanwhile, Google would rapidly lose a massive customer base by cutting ties with the world’s largest telecoms giant, preferred for its high-end technology devices available at affordable prices.

Trump’s trade war continues despite the President being well aware of the tariffs possibly capable of hurting the US interest, with millions and billions of jobs eventually be put to jeopardy. But, in the attempt of not allowing “China to rape America”, could Trump be unknowingly raping the US economy himself?

US-China Trade War Timeline

A series of slapping tariffs and bans on each other’s produces began in February 2018 and followed to September 2018, with both the countries retaliating heavily against each other. The subtotal of the tariffs has now reached $250 billion and $110 billion by US and China, respectively.

The reason – a larger trade deficit – as US is buying more than it sells to China. Whereas, China has been accused of causing currency manipulation (not yet acknowledged). By buying up US dollar dominated assets, the country aimed at boosting the value of dollar against its own currency, Chinese yuan. Currently China may not be buying US dollar dominated assets, but the number of assets that it’s already holding on to, will help keep the interest rates low.

So, the move may have made US goods expensive for China’s consumer market, but it also made Chinese goods and services relatively cheaper, and as a result, more accessible to the US consumers. Going by the difference in trade deficit, US is a larger buyer, which makes China a winner, however, not for long enough. The Republic of China was introduced with back-to-back tariffs soon after – making Chinese goods expensive in the US market – aiming to promote US goods.

How is ‘US-China Trade War’ Expected to Unfold?

Trump evidently has an upper hand in the situation, while Chinese President Xi Jingping doesn’t. China has witnessed the slowest economy in almost 30 years, and depends extremely on the US consumer market for its exports. With the Google-Huawei boycott, followed by a 90-day window to let the Chinese telecom buy services needed to keep existing users updated, US may possibly be risking its own economical graph on the longer run.

According to President Trump, the US government has collected import tariffs from China partly ‘contributing to a stronger economy’.

Whereas, governments collect import tariffs from the companies that are importing or bringing in the goods. Therefore, import tariffs imposed on Chinese goods were actually being extracted from American importers. Thus, US’ plan to impose 25% tariffs on Chinese goods may not be a good news for the American importers who will eventually be paying off the tariffs and also facing core inflation, which is expected to go up by a 0.5% point in the coming 12 months.

Trump’s trade war gamble may have been logical and tactical all this while, but it is certain to gradually impact the heart of the US economy along with Trump’s 2020 election prospects. By putting 300,000 jobs at a possible risk, the President shouldn’t expect anything less from the Americans than a steep drop in his election prospects.

With G20 Summit next month, could people expect the US-China trade war to finally negotiate a deal or, will continued retaliations from both sides contribute to the destabilization of their economies?

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