U.S. Trade War with China

This year, in the first eight months alone, Chinese exports to the United States fell 12.5%. The significant drop in U.S. imports from China signifies that President Donald Trump’s trade war is affecting the bilateral relationship between the two nations, putting business investment and trade at a disadvantage.

Due to the growing dispute between the U.S. and China, it is expected that the global economy will grow at its slowest pace since the last financial crisis, and according to the Organization for Economic Cooperation and Development, “that could inflict even more damage over coming years.” President Trump exclaims that the United States does not need China, but the effect of America’s disinterest in the nation has a negative impact on the domestic economy and working class.

 Disinvestment in China will no doubt require restructuring of global supply chains, which take time, and “in the meantime, rising prices from tariffs strike directly at the president’s working-class base.” China, considerably, has strategically fought back during the trade wars, implementing counter-tariffs that target the pro-Trump farm votes in key swing states such as Iowa and Wisconsin. China’s tariffs greatly affect U.S. farmers who continue to see falling crop and meat prices as a result of low exports. 

Discussions on the trade war have shifted the focus toward implementation of a limited-time agreement instead of having the two nations remain at odds. United States administration officials, for instance, have proposed a three-phase process that would include “large-scale purchases of U.S. agricultural and energy exports by China made in agreement this year, and finally, a partial rollback of U.S. tariffs.” Currently, the trade gap with China sits at $29 billion – a drop from $29.6 billion – while the overall U.S. deficit was higher than anticipated, widening to $55 billion in August. Despite the proposed plan and talks to end the trade war, officials in China are expressing reluctance to agree to the broader deal. If China does not opt to participate in any discussion of the trade talks, then it will be difficult to move plans forward. 

IMPACTS OF TRADE WAR

The trade war has declined U.S. stocks, fluctuated treasuries, increased the value of the yen and weakened the value of the yuan. Regardless of the high-level talks exchanged between the two nations, various items have taken the brunt of the trade war. There has been a dip in Chinese export of items such as wooden cabinets, shrimp and aluminum. As the world’s leading producer of aluminum, China exported its lowest of the element since February. On the contrary, as Chinese imports decline by $43 billion year after year, imports from Mexico have substantially increased by 5.5% – that is, by $12.4 billion. Mexico, “America’s second-largest supplier of goods, posted the biggest increase of exports to the United States.”  The month of August saw a shrinking U.S. trade deficit with China as exports rose to a five-month high.

Amid the trade war, however, China is emerging as a superpower in its own right. According to economist Howie Lee, “given strained relations with the U.S., China needs a hedge against its large holdings of the dollar, and gold serves that function.” Since approximately last December, China has purchased over 100 tons of gold, adding them to its reserves. This buying power reiterates the nation’s stance as one of the major accumulators of the precious metal, which central bank is currently stocking up on. 

Globally, the trade war has the potential to bring a large economic fall out to both hemispheres of the world, especially “as the world’s two largest economies engage in a potentially gargantuan clash and a delinking after three decades of close intertwining.” Domestically, President Trump might win against China in the trade war, but his battles overseas could potentially result in losing the war against the Democrats for the White House.