Starting from January 2018, the Trump administration has imposed and escalated tariffs on imports. In June 2018, the U.S. added a 25% tariff on imports of steel and a 10% tariff on aluminum. In response, retaliatory tariffs have occurred, including retaliating tariffs from China averaging 16% on $121 billion of U.S. exports. For the U.S. this is the first episode of large-scale competitive tariff protection since the Great Depression in the 1930s. As a whole, the U.S. set tariffs on approximately $283 billion of U.S. imports, with rates ranging between 10% and 50%. These combative exchanges of tariffs characterized what is known currently as the “China trade war.”
A trade war is defined as a series of events in which one or more nations attacks another’s trade with taxes and quotas. Typically, it is intended to protect the domestic market from competition. So, why are tariffs increasing? The prime assertion behind the push for tariffs is that the U.S. is being exploited by other nations. Trump believes that the U.S. needs tariffs to punish “thieving” nations to prompt more favorable trade deals. The size of trade deficits is also unfair, argues Trump, saying that the dollar value of goods the U.S. has with China exceeds that of the American goods that China imports.
Yet, there are several problems with this mindset. Trade deficits do not in themselves verify anything about the fairness of trade between the two nations. Furthermore, given the Chinese retaliatory tariffs, placing tariffs is not likely to be the best way to encourage China to change its policies. Scott Kennedy, a China expert at the Center for Strategic and International Studies regards the casualties behind the Trump tariffs as ‘pointless’. “Those pointless casualties will be the companies whose exports are eliminated, and consumers who will pay more and have less choice,” said Kennedy. So far, the U.S. has experienced substantial increases in the prices of intermediates and final goods and large changes to numerous U.S. supply chain networks. The U.S-China trade war has further resulted in a reduced availability of imported varieties and complete passthrough of the tariffs into the domestic prices of imported goods.
The trade war also has influences on the U.S. education systems. Since the beginning of the trade war, the restrictions on visas granted to Chinese students and researchers have been gradually tightened, especially to those working in high-tech fields. In June, China’s Education Ministry issued ‘The First Studying Abroad Alert’ to warn students to be wary of studying in the U.S.
Today, global products are generally produced across the world in global supply chains. This includes products like iPhones, which are typically assembled in China although the components come from all over the world. The China trade war causes companies to operate with more caution because of the potential disruption in their global supply chains. In other words, the investment responses of companies around the world, not just China and the U.S., will be partly calibrated according to the trade war. In conclusion, the China trade war raises questions about the future of international trade integration.
