In recent months, trading between the US and China has become a contentious issue with each country’s premier vying to gain the upper hand. Unprecedented tariffs have been applied by each of the world’s largest two economies, particularly on the American side and experts are watching nervously as the situation develops. The leader of the World Trade Organisation (WTO), and other global financial leaders have warned that the escalating crisis could spread and lead to a global trade crisis. Chief Economist for The International Monetary Fund (IMF) Maurice Obstfeld said, “Trade policy reflects politics and politics remain unsettled in several countries, posing further risks.”
The man at the center of the burgeoning trade war is Donald Trump, who has complained about China’s trade policies since taking the office of President in 2016. In 2018, he imposed tariffs on billions of dollars’ worth of Chinese goods. The Chinese almost immediately imposed its own tariffs on American goods. In December 2018, a breakthrough to this stalemate situation seemed possible when Donald Trump and Chinese President Xi Jinping met for talks. However, the exchange was not successful and ultimately led to even greater trade restrictions. As of May 2019, US tariffs imposed on Chinese goods amounted to a staggering $250 billion. Chinese tariffs on American goods totaled $120 billion.
These tariffs have real-world impact on businesses in both China and the US. In America, the car industry has suffered, in part because steel and aluminum prices have rocketed due to Trump’s tariffs. China isn’t the only country to fall foul of Trump’s wrecking ball. Mexico and Canada have found their goods similarly taxed as they enter US soil, as have some EU countries.
Currently, Washington’s official message is that it hopes to re-launch trade talks with China following the two presidents’ meeting at the G20 summit in Japan on Saturday. However, an important stipulation has been put in place – Washington won’t accept any conditions at all around US use of tariffs. Additionally, Trump’s threat to impose a huge $325 billion of tariffs on Chinese goods remains in place should President Xi fail to change the way his country conducts business. These potential tariffs concern consumer goods like mobile phones, personal computers and clothes. Meanwhile, China has remained resolute, showing no indication that it will back down at all. Despite this, simply by agreeing to once again try to forge a way forward, the two premiers caused a surge of optimism in stock markets around the world. Wall Street shares rose on Monday, the Dow Jones industrial average jumped almost 200 points and the FTSE 100 closed 76 points higher. It is in the interest of both China and the US for a peace deal in this trade war to be brokered as soon as possible. Mark Haefele is global chief investment officer at UBS, a Swiss investment bank. He said: “[Escalating trade conflict] could slow US growth ahead of next year’s presidential election and potentially reduce President Trump’s chances for re-election. China will also be keen to avoid further curbs by the US that could slow the development of its technology industry.”
The situation remains volatile and unpredictable. Economists, traders and business leaders around the world are keeping a close eye on how things develop, with an escalating and irretrievable global financial meltdown an ever-present possibility.