A potential US-China trade war could have far-reaching consequences for the global economy, with tariffs and retaliatory measures threatening to push both nations into recession and harm industries worldwide.
A full-scale trade war between the US and China is in prospect, with President Donald Trump threatening to impose tariffs of over 100% on Chinese goods imports. ‘We’re going to keep doing it until they get their act together,’ said Trump. China has responded by raising its own trade barriers against the US, sparking concerns about the potential impact on the global economy.
With a population of over 1.4 billion, China is the world's most populous country.
Its economic growth has been rapid, with GDP increasing from $1.2 trillion in 2000 to over $14 trillion in 2020.
China has become a major player in global trade, accounting for over 12% of total world exports.
The country has also made significant investments in infrastructure, including high-speed rail networks and airports.
The Scale of Trade Between the Two Nations
The trade in goods between the US and China was worth around $585 billion (£429 billion) last year, with the US running a significant trade deficit with China. However, this figure is less than the $1 trillion figure that Trump has repeatedly claimed.
Despite the size of the trade deficit, some Chinese goods exports to the US have been re-routed through south-east Asian countries, such as Malaysia and Vietnam. This would push up prices in the US for a wide range of goods ultimately originating in China.
The Impact on Key Industries
The US imports large volumes of electronics, computers, and toys from China, with smartphones being the biggest category of imports. However, if tariffs rise to 100%, the impact could be five times greater, leading to significant price increases for Americans.
The trade relationship between the United States and China has undergone significant changes in recent years.
The US-China trade deficit has been a longstanding issue, with the US importing over $500 billion more from China than it exports annually.
This imbalance has led to increased tensions between the two nations, with the Trump administration imposing tariffs on Chinese goods.
In response, China has retaliated with its own tariffs on US products.
The impact of this trade war is felt globally, affecting industries such as technology, manufacturing, and agriculture.
US imports into China will also go up in price due to China’s retaliatory tariffs, ultimately hurting Chinese consumers in a similar way. The US relies on China for trade, particularly in soybeans and pharmaceuticals, which are used by China’s estimated 440 million pigs.
Beyond Tariffs: Other Ways to Damage Each Other
China has a central role in refining many vital metals for industry, from copper and lithium to rare earths. Beijing could place obstacles in the way of these metals reaching the US, potentially harming industries such as aerospace and defense.
The US could also attempt to tighten its technological blockade on China by making it harder for China to import advanced microchips, which are vital for applications like artificial intelligence.
The Global Consequences
If the US and China were to engage in an all-out trade war that slowed their growth down or pushed them into recession, that would likely harm other countries’ economies in the form of slower global growth. Global investment would also suffer.
There is a risk that if Chinese firms could no longer export goods to the US, they could seek to ‘dump’ them abroad, potentially undercutting producers in countries and threatening jobs and wages. The spillover impacts of an all-out China-US trade war would be felt globally, with most economists judging that the impact would be highly negative.
Global economic shifts have a profound impact on international trade, investment, and employment.
The rise of emerging markets has led to increased competition for developed economies.
According to the World Bank, global GDP grew from $33 trillion in 2000 to over $88 trillion in 2020.
However, income inequality remains a concern, with the top 10% holding more than 80% of global wealth.
Trade agreements and economic policies play a crucial role in mitigating these effects and promoting sustainable growth.
Conclusion
The potential impact of a US-China trade war on the global economy is significant. With the two nations accounting for around 43% of the global economy, any slowdown or recession could have far-reaching consequences for other countries’ economies and investors. It is essential to monitor this situation closely and investigate further if necessary.
