The verdict of history is that the trade war that’s raging between the United States and China will lead to no good — with consequences that could go well beyond trade and threaten the world’s geopolitical and economic stability.
Why Trade wars are Bad and nobody wins?
A trade war happens when one country retaliates against another by raising import tariffs or placing other restrictions on the opposing country’s imports. A tariff is a tax or duty imposed on the goods imported into a nation. In a global economy, a trade war can become very damaging to the consumers and businesses of both nations, and the contagion can grow to affect many aspects of both economies.
Trade wars are a side effect of protectionism, which are government actions and policies that restrict international trade. A country will generally undertake protectionist actions with the intent of shielding domestic businesses and jobs from foreign competition. Protectionism is also a method used to balance trade deficits. A trade deficit happens when a country’s imports exceed the amounts of its exports.
According to a report by Chad Bown of the Peterson Institute, the tariffs imposed by President Trump on Chinese imports into the United States have raised the average tariff to 24 percent from 3% at the start of the trade war and “will affect nearly everything Americans purchase from China.”
China has retaliated against Trump’s tariffs, the effect on U.S. exports may be less for two reasons, First, China has exempted 31 percent of U.S. exports from increased tariffs, including aircraft, pharmaceuticals and semiconductors; and second, China’s tariffs seem lower than the United States’.
It’s a good guess that the new global economic system will give overt political considerations greater weight than its predecessor. Countries — including, obviously, the United States and China — will link trade benefits and penalties to their political agendas. This is a perilous path, as no doubt both Americans and Chinese have realized in recent months.
There is a powerful tension between politics and economics. Countries and their voters want to reclaim their economic sovereignty — that is, the ability to influence their economies — when technologies and markets have increasingly transferred those powers to transnational forums that defy easy manipulation.
A trade war may improve a nation’s trade deficit in the short run but it could cost warring nations their economic growth in the long term. However, the United States is engaged in a trade war with the EU, Mexico, and Canada also besides China. Because of this, the affected countries have signed new trade agreements with other countries and have left America out of the loop.
President Trump’s attempts at trade protectionism have already hurt the U.S. economy as a result of which the prices of automobiles, computer chips, soda and beer, and heavy equipment are raised. Companies have cut jobs because the cost of production with local materials is prohibitive. U.S. exporters of agricultural products, bourbon, cheese, and auto parts are suffering as foreign markets disappear under retaliatory tariffs. Trump must resolve the trade war soon before it cause serious damage on the U.S. economy.
Both China and the United States want to be king of the hill, instead of learning how to share