Shortcuts / 01 December 2019

The US-China Trade War

The battle of the big economies. Why the trade war started, how it is playing out and how it is affecting all of us.

What are the origins of this dispute?
All roads lead to US President Donald Trump. While campaigning for president in 2016, Trump laid out plans to counter what he said were “unfair trade practices” from China. Calling China’s entrance into the World Trade Organisation “greatest jobs theft in history,” he tapped into a grievance that America has its economic hands tied behind its back while China flouted the rules and kept getting away with it. 

What exactly was Trump’s concern?
He was particularly concerned about the growing trade deficit between the US and China (ie America was importing far more goods and services from China than it was exporting to them). He also talked about the state sanctioned theft of intellectual property from US companies looking to do business with China.

So, as we know, he’s elected President. How did all this kick off?
Not long after coming to office in early 2017, Trump commissions a review into America’s trade deficits, not just with China, but also with other trade partners. He also meets with Chinese President Xi Jinping at his Mar-a-Lago estate in Florida, where the pair agree to a 100-day plan for trade talks. The 100 days come and go without new steps to reduce the US trade deficit with China. Nine months later in March 2018, Trump orders 25% tariffs on steel imports and 10% on aluminum from all suppliers – not just China. But there’s no mistaking that this is particularly aimed at China. 

Umm, what’s a tariff?
Very simply, it’s a tax on a particular product, or class of products, that’s applied by the country importing it. The idea is it increase the price to make the imported product less desirable versus what the local industry can offer. 

Ok. So how has this unfolded?
Long story short, there’s been a tit-for-tat exchange of the US imposing tariffs, and China matching it. And there’s a pattern of talks starting, failing, and restarting again. By the end of 2018, hundreds of billions of dollars of goods and services are affected by increased tariffs at both the US and China end. And event longer story short, between mid-2018 and now, tariffs on hundreds of billions of goods – both Chinese and Amercan produced – have been applied. 

What sort of good are we talking about?
Dog collars. Computers and modems. Furniture. Agricultural produce. It’s wide-ranging and very detailed.

How has this affected the global economy?
Economists have described the dispute as a ‘lose-lose’ situation for China, the US, other nations caught up in the dispute, and for consumers. That’s because the cost of higher tariffs has been passed down. It’s also undermined confidence in the market. One thing markets like is certainty. But with negotiations teetering on the edge of a Trump tweet, it’s hard for businesses that export or import to invest and grow jobs when they don’t know how or if they could be impacted by changing trade arrangements.

How has it affected the Australian economy?
There has been little direct affect at this point in time, but Treasurer Josh Frydenberg has spoken about the potential coming down the line for Australia’s economy if this dispute isn’t settled. It’s a tricky one for us. The US is our biggest ally, and China is our biggest trade partner, so when they are at odds it makes life very difficult for us. And our economy is underpinned by big export markets into the US, but particularly into China. Their growth is seem by many as crucially important to the growth of the Australian economy.

What happens next?
Talks. And more talks. What this space…

Squiz Recommends:
– The Conversation “How Soybeans became China’s most powerful weapon in Trumps trade war”

World Trade Organisation – what is it and how does it work?

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