U.S. – China Trade War

What you need to know

T

he weakening of the global economy is accelerating, according to the International Monetary Fund (IMF), fueled by trade wars, centered between the United States and China, and the market volatility that follows.

According to the latest report of the IMF, the United States represents a quarter of the World Economy, with a nominal GDP of $20 trillion followed by China with $12 trillion.

Frictions between both countries began in early 2018, when the U.S., imposed three rounds of tariffs on more than $250bn worth of Chinese goods, arguing its trade balance deficit with China is no longer acceptable. The Chinese responded by imposing tariffs on $110bn of U.S. imported goods into China.

In December 2018, both countries agreed to a truce and began talks of negotiation, which up to date have not rendered any official agreement.

Just a few weeks back, in May of this year, U.S. President, Donald Trump, decided to restrict the export of information and communication technologies to foreign adversaries on national security grounds. The order did not mention any specific country but was targeting the Chinese tech giant “Huawei”, which has been accused of espionage by the U.S.

The U.S., last month, raised tariffs on $200bn Chinese products to 25% from 10%. China is analyzing it’s options to respond to the increase of tariffs, and has suggested it is considering targeting minerals exported to the US for technology and machinery productions and development.

 Initial Fallout in China

China continues to be the largest trading partner of the U.S., however commercial traffic dropped 9% in the first quarter of this year. The most affected sectors are agriculture and mechanics in the energy sector.

Initial Fallout in the United States

The latest study by Princeton University and Columbia University, cited that tariffs imposed on a wide range of imports such as steel, costs local consumers approximately $3bn in additional taxes and a further $1.4bn in losses related to a drop in demand.

What about the rest of the world?

The U.S. – China Trade War, is creating a chain reaction and pressuring other countries to take action. Increased tariffs cause Chinese companies with US suppliers to increase their costs, which affect the final price of the product. On the other hand, US products with Chinese suppliers will become more expensive.

The attention now is focused on the G20 Summit in Osaka, Japan, which is taking place on the 28th and 29th of June. Negotiations and agreements are highly expected by the Summit’s members to take place between the two largest economies, and calm market volatility.

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