What Does the Most Recent Trade War Mean to the Economy?

What Does the Most Recent Trade War Mean to the Economy?

 

Over the last few months, the world has been dealing with news of trade wars and how they could affect the economy of a country. President Trump imposed tariffs on products from Asia and other parts of the world with the intention of protecting home industries, and the other trade partners reciprocated by imposing tariffs on goods from the US of the same value. Presently, Trump is adamant that the tariffs will stay or even be imposed on even more Chinese goods if Beijing keeps playing hard.

It all started with goods that were considered to be related to “industrially significant technologies” with $50 billion in tariffs being imposed. These goods include machinery, robotics, and jet engines, with Trump accusing China of stealing intellectual property belonging to the US.

This was only the first phase with the president saying the US was ready to target the entire export market to between the two countries as long as China does not respect the IP rights of the US as well as open its domestic market to goods from the US.

Chine, which imports soy beans, crude oil, and medical equipment from the US, responded by imposing tariffs on these goods.

 

How Does this Affect the Economy?

Both countries are expected to shave their respective growth rates by 0.1 to 0.2 per cent, which may not seem much in the macroeconomic sense. When expressed in numbers, though, it means both countries could lose between $30bn and $60bn per year. On the microeconomic level, it also means Chinese firms exporting to the US will suffer while US firms lose sales as well. US consumers will also experience a hike in product prices as most of the goods used locally are imported.

It is not Clearway law, but it is fair to say that firms such as Apple that outsource a huge chunk of their industrial production to China will also be on the losing end as their cost of production will be higher. The fairer thing to do here would be for the president to impose tariffs on other imports from China so all players are on the same level.

 

The Rest of the World

While the focus is on China due to the magnitude of trade involved, other countries were not spared. Mexico, Canada, and Europe were had steel and aluminum touched too. UK’s auto industry would be affected too. According to the Bank of England, the UK’s economy alone would suffer a 2% hit in the event of a full-blown trade war, while the global GDP would suffer a 2.5% hit. But, the bank estimates that the US would be the bigger loser, shaving off as much as 5% off its GDP.

 

What Happens Now?

The trade war is being heralded by the president, and so only he can dictate how it goes. He is under the illusion that this trade war works in favor of America and that he has much more control of things, but that may not be the case. Domestic backlash may force him to back down eventually, but for now, we watch and wait.

 

 

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