The Implications of U.S. – China Trade War

The US China Trade war has potential large-scale ramifications for the world economy. Earlier in July, Washington and Beijing imposed tariffs of 25% on USD 34 Billion of each other’s exports. It’s expected that US will impose tariffs on another USD 16 Billion of Chinese goods, followed by further tariffs of USD 200 Billion.

The trade war is more problematic for the Chinese Government than for the US Government. China’s economy has been slowing down and it faces challenges in tackling accumulated debts. As such, the trade war will only go on to hit the Chinese economy hard. China being such a large contributor to global growth, this trade war is expected to be a cause of concern for the world economy. The effects will also be felt in regions like Europe, Australia and even the US.

The Chinese Government previously warned that US tariffs would hurt the rest of the world as well since around 60% of the goods against which tariffs have been imposed, are produced by foreign companies. China is Australia’s biggest trading partner and thus a slowdown in China’s growth could affect it as well. Infact China has also filed a complaint with World Trade Organisation on the US’ threat to impose levies on Chinese imports.

The International Monetary Fund has warned that the trade war could cost the global economy around USD 430 Billion while lowering global growth by as much as 0.5% by 202. The fund also warned that the US itself would especially be vulnerable and affected as it has a relatively higher share of its exports taxed in global markets. Commodity markets have also been hit hard and China warns that a sustained trade war could cause global recession.

The trade war however could prove to be a boon for Indian markets. Since China has been India’s traditional competitor, there is opportunity for Indian businesses to capitalize on the situation. This is especially true for sectors which see Chinese exports, such as Electrical Machinery, Computers, Furniture, Clothing, Medical Apparatus and so on. However, how this affects the Indian economy in the long term remains to be seen.

 

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