US Vs China, “Trade war between Super Economies”


From the past few months we are getting daily updates that US is dumping taxes & duties on Chinese goods, on the other hand China is doing the same with US goods. Why there is trade war going in between two largest economies in the world. So, to explain let’s start with US. In last year 2017 US imported goods form China worth 505 billion USD & exported only 130 billion USD worth of goods to China. This creates a gap of 375 billion USD of trade deficit with China. As Trump’s administration oath was to “Buy American Hire American”. But in reality, most of the items which Americans buy are made in China, from expensive television, cell phone, laptops to umbrella & packaged food most of the products are imported from China. Trump’s policy of imposing high tax & import duties on imported Chinese products will stop people from buying those & that will eventually hurt China & increase spending on American goods. But this will create pain for Americans as they will be paying much more than before.

Trump administration accused China on unfair trade practices, including Government subsidies to unprofitable companies which allow business to sell goods in US at artificially low prices. It all started with Trump’s presidential campaign promises to reduce the trade gap between China by providing better deals, imposing tariffs on Chinese imports. He also declared China as currency manipulator. This ignited a trade war between the two largest economies in the world.
For the past decade, US has been the largest exporter of goods & services in the world, but in 2013 China surpassed US and from then these two superpowers been neck & neck ever since. Recent times in first half of 2018, China reported a CAD of 28.3 billion USD for the 1st time in 20 years (stated by State Administration of Foreign Exchange, SAFE). Analyst forecast narrowing surplus or more frequent deficit on backdrop of US-China trade tensions.

Today Trump announced to deal with China to end trade war. US President Donald Trump said he was happy to hold talks with China after imposing 10% tariffs on about 200 billon USD worth of Chinese imports & threatening to increase the rate to 25% in 2019.

Published by Sweta Sharma

I am a Research Associate working in an Equity Research Company having knowledge and experience in Equity Fundamental research.

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