Trade wars arise from the imposition of tariffs and quotas on imported goods to protect a country’s domestic producers. Subsequently, countries affected by these tariffs will fight back by imposing their quotas, thus leading to a trade war. A consequence of protectionism, trade wars between nations cause many changes to international trade. The current trade war between two dominant economies, the U.S. and China, has spurred significant confusion within global markets and the World Trade Organization (WTO). Internally, these wars will reduce the GDP of both the U.S. and China, causing a drop in their international relevance. This paper analyses the causes, foreign and domestic impacts, damages to sustainable business developments, and inequality issues caused by the United States-China trade war.
Causes of the War
In January 2018, President Donald Trump imposed tariffs of 30-50% on washing machines and solar systems. Later on, in the same year, Trump increased tariffs on steel and aluminum by 25% and 10% respectfully (Kapustina et al. 2020). These tariffs significantly affected the European Union, Mexico, and Canada. These tariffs, although highly provocative, did not extensively jeopardize the business relationship between the U.S. and the affected countries. However, the 2019 25% tariffs on $200 billion worth of Chinese imports into the U.S. wreaked havoc in international business (Cerutti, Gopinath, &Mohammad, 2019). It is essential to understand the underlying reason for Trump’s tariff on a Chinese import.
The United States of America has held a dominant seat in international businesses for many centuries. However, the rapid growth of the Chinese market caused competition to the U.S.’ global monopoly. China, therefore, reduced America’s relevance in the market and became the world’s largest exporter. Thus, the U.S. opted for a beneficial trading relationship between itself and China. China, however, took advantage of its relationship with the U.S as it partook in intellectual property theft. The country also forced technological transfers of U.S. information and followed unfair trade practices that threatened America’s high wage jobs. Therefore, Trump’s decision to increase tariffs on Chinese imports and place America before all international relations helped in revitalizing U.S businesses and strengthening domestic growth. Trump’s decision, however, only focused on short term positive impacts on the U.S. Since China retaliated and posed its tariffs on U.S. imports, it led to a trade war between these states. Long term deficits of trade wars reveal themselves in terms of a decrease in imports and exports in the countries directly affected and in their trading partners. Further, such a war would lead to international conflicts and shifting paradigms.
Limitations to Globalization
The U.S-China trade war has inadvertently led to disintegration in the global market. Meltzer and Shenai (2019), state that the immediate effect of the trade war was a decline in employment opportunities. The researchers assert that U.S. exports to China support over 1.8 million employees in sectors such as agricultural and capital goods, service, and supply (Meltzer & Shenai, 2019). The trade war between these two nations, therefore, led to the reduction of employment opportunities and the destruction of low-wage manufacturing industries. Such damage sent thousands of expatriates back home, leading to a reduction in their home country’s net produce.
Many countries believed that the U.S. would weaken its global markets by implementing these tariffs. The EU, for instance, believes that China would win this war due to its international dominance. The EU, however, cannot pick a side to back due to security, law, and trade reasons. If the EU chooses to back the U.S. government, it would have to support unilateral and bilateral trade, a factor that EU laws frown upon. Supporting China in this trade war would grant the EU with trading opportunities but limit the EU-U.S. security relationship.
Also, countries affected by the U.S. imposed tariffs have the right to challenge them in the WTO (Stiglitz, 2017). However, such processes take time, mainly since President Trump chose to overlook WTO laws. The 10% tariffs on aluminum from Canada, Mexico, and the EU would also act as a precipitate against U.S. markets. Khan (2019) states that the EU, as well as nations such as Iceland, Australia, Canada, China, Mexico, and Korea, are against the U.S. tariffs thus may avoid importing to or exporting from American businesses in the long-run.
Additionally, the trade war between the United States and China would lead to the growth of Chinese relations with other nations. For instance, Mexico-U.S. tensions due to Trump’s immigration restrictions offer an opportunity for China to penetrate the Mexican market. Profitable Mexico-China trade relations may give Mexico the incentive to cut ties with the United States. Such a move would lead to numerous global demerits as the United States would lose Mexican goods such as mineral fuels, agricultural products, vehicles, and machinery. Countries that make purchases from the U.S. would also face supply challenges and consequently have to find new trading partners.
Khan (2019) also states that the EU retaliated to Trump’s quotas by imposing a 3.2 billion dollar tariff on American products. The tax significantly affected American businesses and led to a lower GDP in 2018. However, since the EU seeks peace with both the U.S. and China, it reached an agreement with the country, promising not to impose any more tariffs on U.S. products.
Impact on the U.S. and Global Customers