The Effects of Trade War between China and the United States of America

Name:
Professor’s Name:
Course:
Due Date:
The Effects of Trade War between China and the United States of America
Before 2001, the Chinese economy was not seen as a threat by the U.S., and this is mainly because China was not a member of the World Trade Organization (WTO). However, in 2001, China joined WTO and its growth ballooned since it was export-dependent. The Chinese economy went from being a tenth of the U.S. GDP or “12 percent in 2000 to over 40 percent in 2010” (Steinbock, 518). With such growth, the Chinese economy was projected to surpass the U.S. in the 2020s. However, the U.S. has been the world’s superpower for decades, and losing its hold as the strongest economy would put its position at risk. So, it came as no surprise when U.S. protectionism measures led to President Trump’s administration starting a tariff war with China. Even before President Trump won the presidency in 2016, his sentiments were clear, especially toward China and how the U.S. trade deficit with China put the latter at an advantage. One could tell that a trade war was coming long before President Trump assumed power. His resolve to “cut a better deal with China that helps American businesses and workers compete” was quite evident days after he was inaugurated (Hass and Denmark). However, his resolve never factored in China’s retaliatory strategies that soon meant that the two largest economies of the world were involved in a trade war. This trade war has greatly impacted the economies of these two countries. Furthermore, other countries have also found themselves affected by the war as the leaders of both countries appear unmoved by the ramifications of the war. Provided herein is an analysis of the effects of the U.S.-China trade war on both countries as well as the global economy.
Effects on the U.S. and China
Both U.S. and Chinese economies have suffered greatly from the trade war. The trade war has had a major impact on employment in both countries. In the U.S., Zandi, Rogers, and Cosma (2) report that the war has “cost an estimated 0.3 percentage point in U.S. real GDP and almost 300,000 jobs.” The above has been the case mainly because it is the U.S. importers who have been forced to bear the brunt of the trade war. After assessing data since the trade war started, Amiti, Redding, and Weinstein (2) concluded that U.S. importers have had to incur the cost of the tariffs, which Shalal (np) estimated to be around $46 billion. With such a cost in mind, the U.S. companies have had to accept a season that was dominated with lower profits, which in turn impacted investment, wages, and jobs mainly because of downsizing efforts. Farmers are a good example of the lot that has suffered a great deal from the trade war because they reportedly lost a big part of what used to be a “$24 billion market in China” (Lane and Gangitano).
In China, jobs have also been at risk, especially in the industries that have been affected by the tariffs imposed by the Trump administration. According to Bovino and Roache (np), the Chinese manufacturing investment has been greatly affected by the trade war, especially sectors that are directly exposed to the U.S.-imposed tariffs. These sectors include computer equipment and electrical machinery. Evidently, investment in these two sectors was quite weak as uncertainties of the trade war raged on. As seen in the image below, the two sectors saw reduced investment in 2019. Computer equipment showcases a downward trend from 2017, which marks the time President Trump assumed office. Though these sectors are yet to feel the pressure of such lows in investment, Bovion and Roache (np) report that job losses are the likely outcome.
Fig 1.
/en/research-insights/articles/the-u-s-china-trade-war-the-global-economic-fallout
Aside from employment, consumers in the U.S. have also suffered as a result of the trade war. At the beginning of the trade war, consumers were spared as both countries were keen enough to avoid products that would directly impact consumers. However, in September and December of 2019, the U.S. imposed tariffs on Chinese imports that largely impacted the lives of consumers. In the image below, it is clearly shown that tariffs on consumer goods increased in the last two announcements by the U.S. government. As already indicated, the U.S. companies were forced to pay for the cost of import tariffs levied on Chinese goods. The eventual effect was that profitability levels went down. A ripple effect of the above was that domestic prices increased as companies were trying to spread the costs they incurred. If the two countries do not find common ground, U.S. consumers will continue to experience tougher times as many will find it difficult to pay their bills or be forced to cut back on their expenditure. Regardless of the route consumers tak...