Chronicles of a Trade War: How Will It End?

Trump’s move to slap a 25% tariff on Chinese imports represented the beginning of a trade war between the world’s two largest economies.

This tariff, which is expected to equate to around $34 billion worth of Chinese imports, has been reciprocated in kind by Beijing, who have accused the US President of having instigated the “largest trade war in history.”

Yet for the rest of the world standing in the bleachers, waiting to see how this match gets played, what will the economic impact be?

Round One: These tariffs represent the first half of a trade war that extends to $50 billion worth of tariffs which targets Chinese imports that contain “industrially significant technologies”, i.e. cars, machinery, robotics and jet engines. A move that addresses Trump’s accusation that China is stealing American industrial intellectual property.

This is shortly followed up by the second half of that $50 billion, just two weeks later if Beijing continues to be unrepentant on their willingness to compromise with US demands. These demands include China opening its domestic market to US goods and abiding by US intellectual property rights.

Round Two: China’s response has been rapid and swift with the slapping of an import levy on the US manufactured medical equipment, the production of soybeans, and crude oil. Customs officials have already started to delay the passage of US imports.

Round Three: Economic consultancy group Oxford Economics anticipates that on a macroeconomic level, the tariffs will knock off 0.1% to 0.2% of growth from both nations. While this does not seem like a lot, the mammoth proportions of these two economies mean that these decimal point figures

still account for a loss of between $30 to $60 billion. What’s more, these macroeconomic figures don’t account for other factors unfolding at the coalface, such as rising business uncertainty, supply chain disruption and decreased private sector confidence, which all compound to exacerbate decreasing economic values.

Chinese firms which depend on their exports to America will clearly suffer. But US import businesses dependent on low-cost Chinese products will also suffer, as will large US manufacturing companies that outsource the bulk of their industrial production to China. 

Yet obviously, the worst toll will be taken by the several million US and Chinese consumers, who are at the end of all these supply lines, and who will now have to pay a heck of a lot more for the same things.

Round Four: As the war advances to Trump vs. the world proportions, the next tariff targets are expected to be the EU, Canada and Mexico, for their steel, aluminum and car imports to the In an attempt to anticipate the economic cost of this move, The Bank of England conducted simulations and estimated that a full-blown global trade standoff would hit global GDP by 2.5% over three years. The UK’s own economy would feel the pinch, with a 2% drop in growth, but by far the US would take the biggest blow, with a 5% drop.

Round Five: There is always the possibility of a domestic US backlash which may force Trump to take a step back. However, judging by Trump’s previous display of handling with criticism, he’s more likely to fend off the blame, and accuse companies that move offshore of “surrendering”, before threatening them with additional taxation.

Indeed, every backlash will be done in true Trumpian style.

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