International Relations Multilateral Prelims cum Mains

U.S., China fire first shots in tariff war

 

The News

  • The U.S. and China launched tit-for-tat tariffs on each other’s imports, the opening shots in what China called the biggest trade war in economic history.

 

News Summary

Trade war:

  • Latest in US-China trade war, the U.S. pulled the trigger on 25% duties on $34 billion in Chinese machinery, electronics and hi-tech equipment, including autos, computer hard drives and LEDs.
  • China immediately retaliates with tariffs on its $34 billion list of goods issued last month, including soybeans, pork and electric vehicles.
  • This tariffs hike could just be the opening skirmishes in the trade war, as U.S. President Donald Trump has vowed to hit $450 billion in Chinese goods, the vast majority of imports.
  • Months of dialogue between the two economic superpowers appeared to have failed and US warned that it was ready to target more Chinese goods.
  • Mr. Trump has for years slammed, what he describes as, Beijing’s underhand economic treatment of the U.S.

 

 

Implication:

  • On global growth: Economists have warned that the escalating trade frictions could throttle global growth.
  • It is the U.S. economy that is expected to take more damage, according to analysts, who warned U.S. levies could affect American firms with investments in China.
  • The world’s largest economy would also be hit more considering that it is pursuing trade wars on multiple fronts, including its disagreements with Canada and the European Union.

 

Impact of US-China trade war on India:

  • Short term impact:
    • If the trade war were to intensify there is a possibility that a diminished US-China trade engagement could have positive results for countries such as Brazil and India from a trade perspective.
    • If the levy hits China’s import, exports could be dented, a space that India could potentially fill to meet the demands from other countries. There could be a cascading impact in terms of openings for India to enter other markets.
  • Long term impact:
    • A full-fledged trade war is bad news as it invariably leads to a higher inflationary and low growth scenario.
    • Inflation is generally good for assets such as gold, while having a negative impact on currency and some sectors in the equity market.

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