The US-China trade war: No end in sight

• HDFC
• 26 Sep 2018
• Knowledge Centre

HDFC, Tester

In a move that marks the escalation of the US-China trade war, U.S. President Donald Trump imposed an additional 10% tariff on ~US$ 200 bn worth of imports from China in September 2018. He stated that China had been unwilling to change its unfair trade practices, and the new additional tariff structure would give ‘fair and reciprocal treatment to American firms’.

 

Tit-for-tat

 

China's Ministry of Commerce said it would be forced to take "synchronized countermeasures" against the new tariffs. In a statement, the ministry also said that the tariffs announced by President Trump had "added new uncertainties" to trade talks between the two sides.This was followed by China imposing duties of up to 10% on US$ 60 bn worth of US goods.

 

The publication also quoted Mr. Keith Wade, Chief Economist at Schroders as saying, “The red lines on each side are too ideological and entrenched to allow much room for maneuver.”

 

According to a report in a publication, Beijing’s response was weaker than expected. China seems to be saying that it has been drawn reluctantly into this exchange, but is prepared to keep it going if necessary. In addition to this, there is no strategic reason for China to back down at this stage. Tariffs are expected to threaten Chinese jobs, but Beijing can always try to boost domestic demand to offset the likely fall in exports to the US.

 

Long road ahead

 

The Trump administration has structured its tariffs in a way that suggests that it is settling in for a long battle – 10% now, and a threat to go to 25% in 2019. This staggered process seems designed to ease the hit on low-income US consumers.

 

Mr. Jack Ma, founder of the e-commerce giant Alibabawas of the opinion that the prediction of US-China trade war lasting 20 years sounded plausible. He summarized the situation by saying, “If you want a short-term solution, there is no solution.”