China, US on the brink of an all-out trade war

The escalating dispute will hurt consumers, companies and global economy

Photo: Photo: EPA Markets already reacted to worries of a possible US-China trade war.

Even after months of negotiations, China and the United States sank into a rapidly deepening trade conflict that roiled financial markets last Tuesday.

Even after months of negotiations, China and the United States sank into a rapidly deepening trade conflict that roiled financial markets last Tuesday. The dispute between the world's two largest economies escalated after President Donald Trump announced late Monday that he had requested the United States Trade Representative to identify $200bn worth of Chinese goods for additional tariffs at a rate of 10%, beside the 25% import duties previously announced on $50bn in goods. Those actions prompted Beijing to accuse Washington of “extreme pressure and blackmailing” and of starting a trade war.

In the 35-page report titled “How China's Economic Aggression Threatens the Technologies and Intellectual Property of the United States and the World”, released by the White House after Trump's announcement, US ratcheted up its criticism on China even more. They justified their imposition of sanctions by saying that China has become the world's second largest economy through “aggressive acts, policies, and practices that fall outside of global norms and rules”. The report also accused China of seeking “to access the crown jewels of American technology and intellectual property” through physical and cyber-enabled theft of technologies and intellectual property, evading US export control laws, counterfeiting, piracy and reverse engineering.

So what happens if China and the US really start an all-out trade war? According to White House trade adviser Peter Navarro, who sees China as a rival economic power, Beijing had more to lose from a trade war, albeit many analysts fear that Trump's administration has miscalculated the damage China could inflict on US in response.

Last week we already saw that the mounting concerns over the US-China dispute sent global stock markets skidding and weakened both the dollar and the Chinese yuan. Shanghai stocks also plunged to two-year lows. If fully implemented, the punitive tariffs could ripple through the global economy, fracturing supply chains and costing jobs at American companies that will be forced to absorb higher prices. If a trade war were to escalate, the fragile balance in the Chinese economy could be also tipped, and the world may very well experience a second Asian crisis, turning US companies operating in China into targets in the worsening dispute.

But it would get even worse for the US, since China imports US goods worth almost $130bn yearly, compared with US purchases of $500bn of Chinese products. That way, even if Trump goes on to impose tariffs on $250bn or even $400bn of Chinese goods, Beijing could only levy duties on a total of $130bn of American products. This means that, with his decision on Monday, President Donald Trump greatly increased the chances of China finding other ways to execute proportional response to his threats, which could involve not only the physical products, but also the services both countries exchange. As a result, things like tourism and education - industries from which the US benefits a lot more than China does, can be at stake.

Still, very often in a trade war, there are no real winners, but just various degrees of losers. Who would lose the most in this one, we will see in the upcoming months.

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