Trade wars are a way for conflicting governments to iron out issues by trying to avoid a full-blown war. A trade war is possible because the economy of most nations is not completely self-dependent. The United States of America, for example, does not manufacture all it uses to run its country; even the strongest of nations economically have to export some of their supplies to facilitate the smooth running of their country. Strong nations in terms of the economy do not consume all they produce, and there are international and intercontinental trade channels through which trades progress around the world. The strong nations of the world have to export some of their supplies, so just as they depend on supplies from other countries around the world, so do they need supplies from different parts of the world to complete the financial and economical supply cycle of their nations.
When any part breaks the sequence of the virtual trade path, there are several economic reverberations. A trade war occurs when one part of the trade cycle influences a part of the international or intercontinental trade cycle to cause a terrific effect on the economy of the other nation or other nations that depend on such an economy.
Trade wars’ methodology is to create trade tariffs that are either unrealistic or raise them to a point where the target nations of the trade war may not be able to pay. Trade wars usually expand in influence, especially if the two warring countries are economically stable in terms of export power. This is because the trade war has an effect not just on the economy of the warring nations, but also on the other countries that depend on such economies. Trade wars’ impact is not just pronounced on the financial circle; its effects eat down to the hearts of the Nations affected by such war.
A Nation that depends on a lot of medical supplies from other nations of the world will likely start witnessing increased death tolls in the event of a trade war. Such a trade war on the medical supply of a Nation can cause a terrible pandemic flow within the borders of such a nation.
Sometimes, to affect a trade war, a nation raises barriers to the free flow of the trade execution of another country within its borders. This form of a trade war is set in place to aggravate the other nation to either bend to specific terms or get them to stop trade or other economic processes within their economies completely.
In the history of humanity on Earth, there have been many trade wars and trade conflicts, and the end of most has always been irreplaceable effects in the economies of the affected nations. It is to be noted that the goal of most trade wars is to get a nation to bend to some rules or regulations by another. The trade war starts when the nation who’s affected by the regulation refuses to abide by the regulation. Nations that resolve to engage in trade wars usually want to avoid the trouble of running an actual physical war because, although trade wars are bad, they are just a tiny chip compared to the effects that a real war has on a nation’s economy.
THE US-CHINA TRADE WAR
The United States of America and the People’s Republic of China has been in a tight trade war since 2018, and the tension of the trade wars are on the increase every dawning day. America and China are the world’s largest economies, and the trade war they have been involved in has caused a terrible reverberation in the global economic cycle. The trade war between China and America has pulled a lot of traction in the global market because these two nations hold some of the most influential economic potentials of the world.
As a response to the trade wars, both China and the United States have imposed a lot of tariffs on each other’s products at entry into their nations. The rise in the tariff of products of the strongest economies in the world has caused a lot of hardships and terrible reverberation in both nations. Although, both nations are working on attempting to find common ground of compromise at the moment when they both signed a phase one treaty to resolve the current crisis in January 2020.
The United States government believes that the People’s republic of China has been practicing unfair trade orders and intellectual theft, which is why it declared a trade war on the Chinese nation. In return, the Chinese government claims the American nation is trying to hinder it from becoming a world power.
So what is the goal of all of this?
Ido Fishman, Entrepreneur and Investor: “The goal of the American government declaring the Chinese trade war is to make American goods cheaper than imported goods in order to make Americans buy and be attracted to American products rather than cheap Chinese products. One must note that Chinese products are cheap across almost all regions of the world, and the American government has perceived this as a threat to the circulation of its products. America’s methodology to engage in this trade war with China is to set the importation tariffs so high that the Chinese products would become completely unaffordable in the American shores. Through this trade war, the US government has imposed tariffs over $360 billion on Chinese goods. America served three tariffs in 2018, and it served another one in September 2019 that was aimed at raising the price of Chinese product imports with a 15% duty.”
Fishman is certainly right about this and we can see that the Chinese government has also found a way to impose tariffs on the American goods that come into its shores, in the bid to extend its own influence on the trade war. China retaliated to America’s tariffs on its products, with over $110 billion tariffs imposed on US products. This trade war has been a tight lockdown between the two great nations. In response to the American government’s last tariff increase, the Chinese government raised the tariff on American imports on its shores from 5% to about 25%.
In the phase one deal signed by both nations in January, the United States has agreed to halve some of its tariffs, and China has also agreed to boost US imports in its country.
EFFECTS OF THE US-CHINA TRADE WAR ON GLOBAL MARKETS
Ido Fishman clarifies this subject for us further and states: “The United States and China are the world’s largest economies, and a trade war between these two economies will undoubtedly produce some heavy reverberations around both economic cycles. In this section, we will discuss how the trade war between these two giant economies has reverberated across the global markets.”
- Raw Materials Price Hike No economy is self-dependent, and so when one is affected, all are eventually affected.The trade war between the United States and China has brought a lot of hike in the price of raw material with which industries go about with their productions. Because of the increased tariffs on imports from China in America, China also made American imports expensive to purchase in its country, and some of these imports are raw material which industries depend upon to go about their manufacturing processes. The hike in the price of raw material has caused a hike in the cost of products globally. The effects of this price hike are pronounced, especially in some industries across the globe. Some of the industries affected by this trade war are:
- The energy Industry This sector is affected because its core processes depend on Imports of Steel and Aluminum into America from China. Since the start of this trade war, the American government has imposed an additional tax on Aluminum imports from China, and this has caused a severe hike in the energy cost of America. The American energy sector uses Aluminum and Steel imports from China to construct pipelines, build solar panels, distribute electric power, et cetera.
- The Automobile Industry Most American automobiles sell in the Chinese market. Still, because of the trade war that has been ravaging for a long time between China and America, the Chinese government increased the tariff on automobiles importation from America to 40% from 15%. The goal of all these tariff increments is to make imported goods so expensive that locals would prefer to go for locally made products rather than the imported ones. The hike in the price of raw materials with which automobiles are made with has caused a hike in their sale price, the import price, and the warring governments have also helped the worsening of the situation by increasing tariffs on both sides. The automobile price hike has not affected the Chinese nation as much as it did in the American nation. This is because China has a thriving automobile industry that’s both cost-effective and flexible enough to serve the needs of its locals. However, one must note that the Chinese nation could not afford to sell its automobiles in America at some point because of the expensive tariff rates imposed by the American government.
- The food and the Agricultural cycle Food may seem mundane, but when the price of food is too high in a region of the world, people that exist within that region are likely to face irreversible consequences. Since the intensifying of this trade war, the Chinese government has cut off the importation of some agricultural products from the American shores. China has the largest population in the world. So, it was easy for American farmers to find a market for their products in the Chinese shores before the trade war began. Still, since the start of the trade war, American farmers have been in a continuous struggle with trying to get a profitable market (even if they find a market at all) for their farm produce. The cut in the supply of farm produce has caused a lot of other industries that depend on the farm produces for their products to seek supplies from other parts of the world, where it would be expensive to import, and this has consequently caused a terrible hike in the price of food.
- Consumer Products Price Hike Because of the hike in the price of raw material across several sectors of the American and the Chinese economy, there has been a tremendous increase in the price of production of goods by industries. While this may not really be a problem for the government and high-class officials, the rise in the cost of production has consequently led to an increase in the cost of consumer products across the American and Chinese regions. This increase in price tends to affect most consumer products. The rise in the price of consumer products makes it very difficult for the average person to sustain a living in all the regions affected by this trade war. The American government has seen a trend of unemployment increase since the start of the US-China trade war. Soybeans are the most significant product which China imports from America. Still, since the inception of this trade war, the Chinese government has cut down the number of Soybeans it imports from America. This reduction has caused serious trouble for American farmers as the major market for their products is almost completely off; it has been a challenging time for American farmers since this trade war started. The Chinese government cut down the amount of Soybeans importation from America with the intention to keep the American government on the pressure to relieve some of its tariffs. Although China uses the Soybeans supply from the Americans to fuel the feeding of its farm animals, China has found a way to thrive better than America in terms of consumer products since the start of this trade war.
- SME Decline
Since scratch, Small and Medium Enterprises (SMEs) have been at the forefront of the receiving end of this trade war. The increase in the importation tariffs has reverberated into a hike in the price of raw materials and, which has consequently led to the rise in the cost of production. However, the cost of running SMEs has dramatically increased since the inception of this trade war. Small and Medium Enterprises (SMEs) face the most potential adversities of this trade war because they are forced to pay prices which they do not have the financial capacity to afford. Because of the increased tariffs between both countries, many Small and Medium Enterprises (SMEs) have just been struggling to keep their head above the waters through the warring period. While it is still possible to import goods between these two nations, it is easier for industries with more established grounds to pay for import prices at this time than small and medium scale businesses who are just trying to find their feet around the business world. The fact that there are over-inflated importation tariffs cuts down the possibility of executing importation activities by SMEs by a considerable percentage, making it hard to thrive in such economies.
- Job Losses It would be interesting to note that the importation industry in many nations of the world does not only generate a large amount of the tax income of such countries; it also creates employment for many people. Since the economic fallout between the People’s Republic of China and the United States of America (USA), the import rates have significantly reduced. While there are still a few overrated importation activities between these two nations, many importation activities have been severely hindered, and this has caused a lot of companies and industries to lay off their staff pending the time when the trade war will be relieved of its distresses. Although the rate of job loss as a result of this trade war is not yet pronounced in the Chinese nation, it has started affecting many people in the United States.
Although a trade war has mild effects compared to that of an actual war, we must keep in mind that it is a war, nonetheless. The US-China trade war has lasted over a year and a half, and there have been severe tensions between both nations since the start of this trade war. A lot of processes have had to change. In the change process of a lot of systems, there have been many terrific effects. Although the United States and China have started making moves to resolve the trade war between their nations, the trade war is still on, and its repercussions have channeled their effects throughout the global market. Some financial experts proclaim the worst days of this trade war are yet to come if the two nations do not come to a position of reasonable compromise soon enough. Some say this trade war could eventually lead to a currency or financial war, and that is one significant area in which the whole world would not want to witness at a time like this.