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The escalating trade war between the United States and China

The escalating trade war between the United States and China

The US- China trade war caught momentum since the beginning of 2018 as US president Donald Trump started taking measures to implement his promise during electoral campaign. He had promised to pressurise China to rectify trade distortions such as US high trade deficit with China (approx $300 billion) and lack of market access to US exports due to various restrictions and condition of technology transfer imposed on American companies investing in China. Trump had promised in his campaign to fix China’s “longtime abuse of the broken international system and unfair practices”.

The US has introduced tariffs on goods imported from China and China has retaliated by increasing tariffs on imports of American products. Starting in January 2018 the U.S imposed a tariff on solar panel imports, most of which are manufactured in China. On July 6, the U.S. specifically targeted China by imposed 25% tariffs on $34 billion of imported Chinese goods as part of Trump’s tariffs policy, which then led China to respond with similarly sized tariffs on U.S. products. A tariff on an additional $16 billion of Chinese imports was added in mid August, with China responding proportionately. A further tariff on $200 billion of Chinese goods is to go into effect on September 24, 2018 to which China plans to respond to with tariffs on $60 billion of US goods. The Trump administration said the tariffs were necessary to protect intellectual property of U.S. businesses, and to help reduce the U.S. trade deficit with China.

The U.S. administration is relying partly on Section 301 of the Trade Act of 1974 to prevent what it claims are unfair trade practices and theft of intellectual property. This gives the president the authority to unilaterally impose fines or other penalties on a trading partner if it is deemed to be unfairly harming U.S. business interests. Trump had already, in August 2017, opened a formal investigation into attacks on the intellectual property of the U.S. and its allies, the theft of which cost the U.S. alone an estimated $225–600 billion a year.

The goods affected by trade war between the US and China and the timeline is as follows:

Solar Panels- President Trump placed a 30% tariff on foreign solar panels on January 23, 2018, to be reduced to 15% after four years. China, the world leader in solar panel manufacture, decried the tariffs.

Washing Machine– On same day (Jan 2, 2018), tariffs of 20% were placed on washing machines for the first 1.2 million units imported during the year. In 2016, China exported $425 million worth of washers to the United States.

1,300 categories of new Chinese products charged with tariff in March 2018 – Trump asked the United States Trade Representative (USTR) investigate applying tariffs on US$50-60 billion worth of Chinese goods, on March 22. He relied on Section 301 of the Trade Act of 1974 for doing so, stating that the proposed tariffs were “a response to the unfair trade practices of China over the years”, including theft of U.S. intellectual property. Over 1,300 categories of Chinese imports were listed for tariffs, including aircraft parts, batteries, flat-panel televisions, medical devices, satellites, and various weapons.

China retaliated in April 2018 by putting higher tariffs on 128 American products- China responded on April 2 by imposing tariffs on 128 products it imports from America, including aluminum, airplanes, cars, pork, and soybeans (which have a 25% tariff), as well as fruit, nuts, and steel piping (15%). On April 5, Trump responded saying that he was considering another round of tariffs on an additional $100 billion of Chinese imports as Beijing retaliates. The next day the World Trade Organization received request from China for consultations on new U.S. tariffs.

Efforts of reconciliation

China promised to help reduce US trade deficit in May 2018 – Vice Premier Liu He, top economic adviser to Communist Party general secretary Xi Jinping, visited Washington from May 15 to 19 for further trade talks. It was reported on May 20 that Chinese officials had agreed to “substantially reduce” America’s trade deficit with China by committing to “significantly increase” its purchases of American goods. As a result, Treasury Secretary Steven Mnuchin announced that “We are putting the trade war on hold”. White House National Trade Council Director Peter Navarro, however, said that there was no “trade war,” but that it was a “trade dispute, fair and simple. We lost the trade war long ago.”

May 2018: further tightening by the US AFTER FAILED RECONCILIATION

25% tariff on $50 billion of Chinese goods – The White House announced on May 29 that it would impose a 25% tariff on $50 billion of Chinese goods with “industrially significant technology;” the full list of products affected to be announced by June 15. It also planned to impose investment restrictions and enhanced export controls on certain Chinese individuals and organizations to prevent them from acquiring U.S. technology. China said it would discontinue trade talks with Washington if it imposed trade sanctions.”

June 15 : Announcement of the US for more tightening

On June 15, Trump declared in a short White House statement that the United States would impose a 25% tariff on $50 billion of Chinese exports. $34 billion would start July 6, with a further $16 billion to begin at a later date. China’s Commerce Ministry accused the United States of launching a trade war and said China would respond in kind with similar tariffs for US imports, starting on July 6. Three days later, the White House declared that the United States would impose additional 10% tariffs on another $200 billion worth of Chinese imports if China retaliated against these U.S. tariffs. The list of products included in this round of tariffs was released on July 11 and was set to be implemented within 60 days.

China’s retaliation in July 2018

China retaliated almost immediately, threatening its own tariffs on $50 billion of U.S. goods, and claimed the United States had “launched a trade war.” Import and export markets in a number of nations feared the tariffs would disrupt supply chains which could “ripple around the globe.”

American tariffs on $34 billion of Chinese goods came into effect on July 6, 2018. China imposed retaliatory tariffs on US goods of a similar value. The tariffs accounted for 0.1% of the global gross domestic product. On July 10, U.S. released an initial list of the additional $200 billion of Chinese goods that would be subject to a 10% tariff. China vowed to retaliate with additional tariffs on American goods worth $60 billion annually two days later.

Trade war intensifies in August 2018

On August 8 the Office of the United States Trade Representative published it’s finalized list of 279 Chinese goods, worth $16 Billion, to be subject to a 25% tariff from August 23. China responded with its own tariffs of equal value when the American tariffs were implemented on August 23. On August 14 China filed a complaint with the World Trade Organisation (WTO), claiming that US tariffs on foreign solar panels clash with WTO ruling and have destabilised the international market for solar PV products. China claimed the resulting impact directly harmed China’s legitimate trade interests.

Reconciliation effort fails again

US Treasury Under Secretary David Malpass and Chinese Commerce Vice Minister Wang Shouwen met on August 22 in Washington DC in a bid to open up dialogue in response to the intensifying trade war, yet discussions ended with no resolution. By August 23, US implemented a further 25% of tariffs on $16 billion of goods as promised, which was reciprocated by China. China filed a new WTO complaint against the US as a result of this tariff escalation.

America puts additional tariffs in September 2018

On September 17 the US announced its 10% tariff on $200 billion worth of Chinese goods would begin on September 24, increasing to 25% by the end of the year. They also threatened tariffs on an additional $267 billion worth of imports if China retaliates, which China promptly did on September 18 with 10% tariffs on $60 billion of US imports. So far, China has either imposed or proposed tariffs on $110 billion of U.S. goods, representing most of its imports of American products.

The unending trade waris likely to affect global growth rate having spillover impact on trade, investment and employment. According to experts this does not augur well either for the economies or for the people. The producers and consumers both stand to lose and the green shoots of recovery after the global recession may be scuttled again. A negotiated solution is necessary to avert adverse consequences of the trade war which has the potential to drag most of the big economies in the whirlpool and quagmire of recession again.

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