We have commented previously on the escalating tensions between the US and China. It now appears to be fittingly described as a ‘Trade War’. The US is imposing a 10% tariff on a range of Chinese imports to a value approaching $200bn, further announcing that the tariff would rise to 25% at the end of the year if China retaliated. China responded promptly announcing 5-10% tariffs on US imports of an approximate value of $60bn.
Given the trade imbalances between the two nations, on the face of it, the US has scope to inflict more pain in the form of tariffs. So who wins? And what does winning mean in this context?
There are two units within Trade & Export Online (34 and 35) which describe customs procedures and the World Trade Organisation (WTO) consensus within which they ‘normally’ operate. We would urge all learners to revisit these.
So one route for China may be to focus more on non-tariff barriers. For example, making life more difficult for US companies operating in China or disrupting the flow of goods that are more essential to major US businesses – like key components.
We can easily get into the territory of ‘unintended consequences’. It is not too difficult to construct scenarios where China loses investment or exports if it makes life difficult. However, a multi-national may just as readily focus on alternative markets, not merely repatriate business to the US, when pursuing the economic result. In which case neither the US nor China ‘wins’.
Further, as commented on in previous articles, the WTO framework may be one of the targets of the US administration, driven by a desire for a change in the way that operates. But is the climate and consensus conducive to such change?
Many developments in trade practice, since the Second World War, have been informed by free trade thinking. From that perspective, it is easier to speculate on collateral damage from this episode than predict where tangible gains will come from! Nonetheless, an interesting challenge to our understanding of how trade works…