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US-China tariff wars

Topic covered:

Effect of policies and politics of developed and developing countries on India’s interests, Indian diaspora.

 

US-China tariff wars

 

What to study?

For prelims and mains: US China tariff wars-causes, effects, implications on other countries and what is needed?

 

Context: US recently decided to hike tariffs to 25 per cent on $200 billion worth of Chinese goods. This move could impact goods trade in more than 5,700 product categories and spark off another round of tariff wars between the two largest economies of the world.

 

Trade Impact:

  • The biggest Chinese import sector impacted by the hike in tariffs is the $20 billion-plus category of internet modems, routers and other data transmission devices, alongside printed circuit boards used in a number of US-made products.
  • Furniture, lighting products, auto parts, vacuum cleaners and building materials are also faced with higher levies.
  • The tariffs could hamper the rebound in the US economy, with consumption likely to take a hit as these tariffs would be paid by American consumers and businesses.

 

Impact on India:

There could be a short-term impact on the stock markets over fears of the escalating trade war between the US and China.

In the longer run, while a slowdown in the US economy does not augur well for emerging markets, the trade war heralds a silver lining for some countries. India is among a handful of countries that stand to benefit from the trade tensions between the world’s top two economies, the UN has said in a report.

 

Benefits for other countries:

Countries that are expected to benefit the most from the trade war are the EU members as exports in the bloc are likely to grow by $70 billion. Japan and Canada will see exports increase by more than $20 billion each. Other countries set to benefit from the trade tensions include Australia, with 4.6 per cent export gains, Brazil (3.8) India (3.5), Philippines (3.2) and Vietnam (5), the study said.

 

Origin of the US-China dispute:

  • Trump slapped heavy tariffs on imported steel and aluminium items from China in March last year, and China responded by imposing tit-for-tat tariffs on billions of dollars worth of American imports.
  • The dispute escalated after Washington demanded that China reduce its $375 billion trade deficit with the US, and introduce “verifiable measures” for protection of Intellectual Property Rights, technology transfer, and more access to American goods in Chinese markets.

 

Why should the world be worried?

  • In a report earlier this year, the IMF noted that the US-China trade tension was one factor that contributed to a “significantly weakened global expansion” late last year, as it cut its global growth forecast for 2019.
  • Also, this exacerbates the uncertainty in the global trading environment, affects global sentiment negatively, and adds to risk aversion globally.
  • The higher tariffs could lead to the repricing of risk assets globally, tighter financing conditions, and slower growth.
  • The trade tensions could result in an increasingly fragmented global trading framework, weakening the rules-based system that has underpinned global growth, particularly in Asia, over the past several decades.

 

Sources: The Hindu.