US-China Trade War: What are the Effects?

By Huihua Nui

On 11 October a temporary trade agreement was reached by the United States and China as both leaders’ faced increasing political pressure and growing economic worries in the country.

The 15-month trade war has caused serious losses. China and the United States and the global economy have been affected to varying degrees, but at the same time several countries have benefited from trade wars such as Mexico and a number of South East Asian countries.

So far, the US has imposed tariffs on more than $360bn of Chinese goods, and China has reacted with tariffs on more than $110bn of US products.

Washington has delivered four rounds of tariffs so far. The latest round targeted Chinese imports with a 15% duty, as Beijing imposed tariffs from 5% to 25% on US goods.

Its latest tariff is the first time involved fuel in the trade battle which the strike included a 5% levy on US crude oil.

The survey of the impact of US-China mutual tariffs by the EconPol Europe analyses that Chinese exporters bear about 75% of the cost.

This means that in the end the US economy will increase its net income by $18.4 billion. The study also shows that due to the increase in tariffs, China’s exports to the United States will inevitably fall by 37%, which will lead to a 17% decline in China’s trade surplus with the United States.

The International Monetary Fund warned that the US-China trade war could cost the global economy about $700 billion by 2020, which is equivalent to the size of the entire Swiss economy.

The report pointed out that the key factors, in addition to the serious imbalance between the trade gap between Washington and Beijing, the US tariffs are strategically levied, ensuring that it is not difficult to replace the affected Chinese imports.

As a result, many companies have moved their factories out of the US or China to evade this tariff.

However, some countries have benefitted, such as Vietnam, as a number of American companies operating in mainland China have moved many their factories to Vietnam.

In addition, Taiwan, Malaysia, Bangladesh, and India have also benefited to varying degrees, especially in India, who have successfully attracted Apple’s main processor Fujitsu to settle in the country.

All together 52 companies have moved out of China and half of them chose to settle in Vietnam, with 11 moving to Taiwan.

According to the report, Vietnam has good labor resources, and compared with China, labor is cheaper, especially in the textile industry. Data shows that Vietnam’s exports of US goods in the United States in 2019 soared 34%, about $8 bn US dollars, which makes Vietnam’s gross domestic profit growth forecast of 2019 can hit 8%.

Outside of Asia, Mexico is also one of the beneficiaries of the trade war, and some American companies in China have chosen to move to Mexico.

In the first half of 2019, Mexico’s exports to the United States increased by 10% year-on-year.

Another country that has benefitted is Brazil. In the important soybean trade in Brazil, Brazil’s exports to China almost doubled increasing from 14 million tons to 25 million tons in one year.

Leave a Reply

Your email address will not be published.