Here’s what you should know about a US China trade war

10/04/2018

The US-China trade-war is on – who will it benefit and who will it hurt?

 

On Tuesday, Chinese President Xi Jinping pledged to lower import taxes on automobiles. The move comes in an effort to concede to President Trump’s growing moves to block Chinese imports with an increase in taxes on imports from the country. China currently taxes 25% on vehicle imports. Despite the announcement, Beijing has intended to lower vehicle imports since November, but tangible policy measures have yet to be put into effect.

This latest announcement follows a string of trade policies put into place by the United States that are then countered by China, which have caused stock markets to tremble. While it’s true that there is a surplus of imports of Chinese goods into the United States, economic experts argue that the difference is made up by United States’ exports of services – an imbalance that reflects the makeup of each country’s respective economy. In case you’ve fallen behind with the latest in US-China trade tensions, here’s a recap:

In April, President Trump launched an investigation into steel imports from China. He then directed the Department of Commerce to investigate whether those imports pose a threat to national security, diminishing the US capabilities of manufacturing defense technologies.

 

US 25% tariff on steel and 10% tariff on alumninum causes Bejing to retaliate

 

An investigative probe in August 2017 focused on Chinese theft of intellectual property. The report estimated that intellectual property theft by China costs the US “between $225 billion and $600 billion” every year.

In January 2018, President Trump slapped tariffs on solar panels and washing machines, the majority of which are imported from China.

In March 2018, Trump followed-up on recommendations made by the Department of Commerce the month prior by placing a 25% tariff on steel and a 10% tariff on aluminum. This move got the attention of the Chinese government, which promised to retaliate should Chinese businesses be negatively affected.

Beijing did, in fact, retaliate in March by imposing taxes worth US$3 billion on US imports including a 15% duty on 120 American products including fruits, nuts, wine and steel pipes and a 25% tax on eight others, like recycled aluminum and pork.

On April 3 and 4, the US government threatened an additional US$50 billion of taxes on Chinese goods, and China responded threatening US$50 billion of taxes on US goods.

On April 5, Trump followed up threatening an additional US$100 billion of taxes on Chinese imports, and Beijing promised to respond in turn should measures be put in place. On the same day, the Dow closed down 572 points.

 

A US-China trade war would undermine the General Agreement on Tariffs and Trade of 1947 and the WTO

 

There are several ulterior motives that experts suspect are fueling President Trump’s actions. Trump’s voter base is largely working-class Americans who have suffered unemployment and declining economic circumstances since globalization and multilateral trade began in the 1990s. While it remains to be seen if citizens from post-industrial cities will regain lost jobs through the taxes on steel and aluminum imports, the move undoubtedly vindicates these voters for their decision to elect the current president.

Furthermore, NBC reported that according to Whitehouse insiders, Trump began the trade war after becoming unhinged after a series of chaotic events that day, unrelated to China and economic policy.

Although the measures so far don’t represent an all-out US-China trade war, should one erupt, the global multilateral trade system would feel the effects. The General Agreement on Tariffs and Trade of 1947 was put in place to avoid unfair tariffs and encourage international trade after World War II. In 1995, the World Trade Organization was established to further promote fair regulations in conjunction with multilateral economic policy. Both policies have led to an increase in domestic and global economies, and are considered by most to be great achievements.

 

Key players urge WTO to address cross-border e-commerce via working group

 

In the meantime, Jack Ma, CEO of e-commerce giant Alibaba, and Christine Lagarde, Managing Director of the International Monetary Fund urged leaders to refrain from increasing tariffs at the Boao Forum in Hainan. Both leaders pointed out that global poverty has decreased in conjunction with increased international trade. “In 1990, it was 37 percent and today, it is about 10 percent,” a general rise in living standards due to free, unfettered global trade, Lagarde said according to SCMP.

So would a trade war affect cross-border e-commerce? Perhaps, but for now, SMEs and cross-border sellers should watch and wait. Currently, there are a handful of informal groups to discuss current issues, like e-commerce, investment facilitation, and small and medium-sized enterprises. There’s also an e-commerce group affiliated with the WTO, of which the United States is a signatory. The US has signaled that the WTO should address issues of cross-border e-commerce. Doing so through an international, multilateral organization rather than a unilateral trade war promises fair, logical regulations around this new industry, and bodes well for e-commerce sellers.

 

MORE ON THIS TOPIC

Leave a Reply

Your email address will not be published. Required fields are marked *