US-CHINA TRADE WAR
US-CHINA TRADE WAR
rightbottomYERRA VINAY KUMAR
1366942300YERRA VINAY KUMAR
A trade war is a back and forth dispute where a country imposes tariffs on certain imports in order to restrict trade. In response, the country or countries affected by those tariffs impose their own fees on imports. So simply trade war can be called as the tariffs with fees or taxes assessed on certain product when imported into a country. The 2018 China-United States trade war also known as the Trump trade war is an ongoing trade war between China and the United States which Trump, the current US president, promised in his campaign to fix China’s longtime abuse of the broken international system and unfair practices. Each country has introduced tariffs on goods traded with the other. Starting in April 2018, the US imposed tariffs on steel and aluminum imports from China, as well as Canada and countries in the European Union. The tariffs also aim to push back against China’s demands for the technology transfers from US companies in return for access to china’s market. The effects of this were that Chinese currency depreciated 4.3 percent against the dollar. This is natural market reaction to the US projection. Over the same period, the dollar has appreciated about 5 percent against a basket of major currencies. President Trump asked the United States Trade Representative (USTR) investigate applying tariffs on US$50 billion worth of Chinese goods, which he estimated would affect about $60 billions of Chinese imports. President Trump asked the United States Trade Representative (USTR) investigate applying tariffs on US$50 billion worth of Chinese goods, which he estimated would affect about $60 billions of Chinese imports. So, on 6th September China stated that it will take countermeasures if the US imposes tariffs on USD 200 billion worth of Chinese products, recently in Beijing they repeated how the tough stance in the trade war despite the growing impact it is having on its own economy.
FINDINGS ; DISCUSSIONS:
Much of what the US imports from China contains value created in other locations that includes America. Much of the value in an iPhone imported from China, for example an iPhone gets its display from South Korea, its Chips from Japan and the programming is done in the US, so each dollar of sales lost by a Chinese company actually has a less than 1-dollar impact on the Chinese economy. In computers and electronics, which accounts for the largest share of China’s exports to the US, the Chinese value added in each dollar of imports is about 50 cents. Consequently, the negative effects of tariffs on the Chinese manufacturing is unlikely to be large enough to have an impact on China’s trade practices.
Let’s take Apple has a whole company and see how it affect them in the trade war. Apple’s dealing with China are extensive, both in manufacturing and in sales of its flagship products. Of Apple’s $247.5 billion in revenue over the last twelve months 18% originated in mainland China, making it the second- largest market for Apple’s products. The country also serves Apple’s primary manufacturing base, all of the companies’ hardware products are currently manufactured by outsourcing partners that are located primarily in Asia, with some Mac computers manufactured in the US and Ireland. A lion’s share of the world’s iPhone is assembled at a single Foxconn plant in Zhengzhou in the central part of China, but we always see “Designed in California, assembled in China” inscribed on the back of each device. Apple is said to have created and supported 4.8 million jobs in China including 1.8 million iOS app developers and other iOS ecosystem-related jobs there, in addition to more than 12000 direct employees in the country. The Chinese mainland alone is the world’s largest market for the iPhone, Apple’s flagship product that made up 62 percent of the company’s total revenue in the past financial year. Substantially all of its hardware products are currently manufactured by outsourcing partners that are located primarily in Asia. So for a company that is so depend on the Chinese market will have a huge dent and will suffer a huge loss if the trade war takes place, According to reports President Trump had offered to exempt Apple’s and iPhone’s tariffs in a meeting with the CEO of Apple (Tim Cook) to justify the arguments of an anonymous source familiar with the talks anyhow the White House later denied any knowledge of the conversation, this shows us that President is not sure what to do with the big companies who are so dependent on the Chinese market. And now the numbers are not looking good for the President who has made reducing of the US trade deficit one of his main economic goals.
Now sighs are emerging that President Trump’s trade war are starting to hit economic growth, not just in US but all around the world, new data shows us that US trade deficit in July is widening at its fastest rate since 2015 as monthly deficits China and the European Union both hit new records. In the year so far, the US’s overall goods and services deficits is up by $22 billion or 7% compared to the same period last year. The numbers coincide with Trump’s moves escalates his battles with China and efforts to badger Canada into sighing on to a New North American Free Trade Agreement (NAFTA), highlighting what economists have argued is the incongruity of his trade policies. Even as he launches his battles in the name of reducing the US’s imbalances, he has been causing the overall deficit to grow by increasing public spending and encouraging domestic investments. Also apparent in the trade data are some of the distortions that Trump’s policies have been fueling and how they may be helping mask the long-term impact of his trade wars. While soybean farmers are widely seen as one of the likely Victims of the trade war China, for example a surge in exports of Soybeans to get ahead of new tariffs helped boost US GDP growth in the second quarter. In the first seven months of this year, the value of US soybean exports actually increased by more than 40% or $5.7 billion compared to the same period last year. Those distortions are likely to be temporary and this is why many economists believe US GDP growth may have peaked at 4.2% in the second quarter, with trade likely to be a drag on growth in the months to come. The effects of trade are unlikely to be restricted to only US and China, due to this other country will also find a change in the dynamics of their economy. Like the basic principles of economics that is supply and demand will once again come to a play. The shortage of supply of goods, either finished material or raw, will increase the final consumption price for the consumers. Moreover, the burden of increased tax from the duties will also borne by the final user. India also gets affected by the trade war for example the Rupee value has dropped to an all-time low, when in some occasions it was hovering around the mid 68s against the US dollar. This coincided with Trump’s threat of imposing a fresh round of tariffs on exports worth $200 billion. This trend can weaken the US dollar, which automatically creates a negative impact on the trade deficit of India, causing a chain reaction of sorts. The stock market also saw a significant drop in this period, as of now the Sensex is trading at about 37.5 which is below the average. As the US imposed duties on steel and aluminum, India now has to pay approx. $241 million worth of tax to the US. India on the other hand as a counter-measure has proposed imposing duties on different types of goods. This will ensure that the US has to pay about $238 million as duties to India. This will surely make life difficult for the end consumers as everything that falls under the tariffs scanner is expected to become more expensive.
All the countries have to play a significant role by keeping their business environment stable. Their strategic plans could prove to be crucial and hence there is a need for different plans suitable to different economic environments. The world is witnessing an unprecedented trend of synchronous growth, a growth which is dynamic in nature. So, there is a necessity for preparedness for all types of eventualities, as on the trade war does not materialize the possibilities of tremendous growth in the economic world.
I would like to conclude by saying this trade war is affecting a lot of businesses which is affecting in their own economic growth. If a trillion-dollar company as Apple can be affected by this think about the smaller companies and a consequences they would have to face. No country will sustain or gain anything if the trade war takes place. It might be a temporary thing right now because of the US President Trump but everyone should have their plans accordingly for them not to suffer any problems in the future.