The US-China conflict is not a recent event but rather a culmination of the countries’ changing dynamics in the last few decades. The strained relationship dates back to 1949! However, the tussle between the superpowers has gained greater prominence in the news lately. And given the hard stances taken by either government, it is bound to translate into trade hiccups.
Despite a few leaders claiming that trade wars are good in a competitive spirit, the ramping up of import duties and taxes are adding to the distressed relations between the two countries. Further, the US-China conflict could potentially leave behind micro-and macro-economic impacts.
Here’s a look at the trade war between the US and China and its implications:
The US-China Conflict: A Brief Overview of Recent Happenings
Following is a timeline of all the actions in the past decade:
- 2010 saw China overtake Japan to become the world’s second-largest economy, with Goldman Sachs predicting China to surpass the US by 2027.
- The US trade deficit with China touches 295.5 billion in 2011, the highest of all times, while the US, EU, and Japan dispute China’s restrictions on the export of rare-earth metals.
- President Obama attempts to ease US-China tensions by inviting his counterpart, President Xi Jinping, for the Sunnylands Summit in 2013.
- US’ 45th, Donald Trump hosts President Xi Jinping at Mar-a-Lago to discuss the trade of products and services, especially electronic payments, beef, and poultry.
- In 2018, the Trump administration announced a massive tariff on Chinese imports to the valuation of USD 50 billion in response to alleged intellectual property and technology theft. China retaliates by imposing sweeping tariffs on US imports.
- The US-China Trade War escalates as Washington imposes fresh tariffs on over 800 Chinese products with import taxes as high as 25%. China responds by increasing tariffs on over 500 US commodities.
- The US Justice Department requests Canada to arrest Huawei Executive Meng Wanzhou for allegedly violating trade sanctions against Iran. In 2019, Huawei filed a lawsuit against the US.
- After the break down of trade talks in 2019, Washington raises the import tariff of Chinese goods from 10 to 25% while China retaliates in the same manner.
- The US-China relations deteriorate further as Donald Trump signs the Hong Kong Human Rights and Democracy Act, supporting the Hong Kong protestors. China imposes sanctions on various US-based organizations.
- In 2020, Washington and Beijing sign the ‘Phase One’ Trade Deal, offering a breakthrough in the two-year trade war standoff. The agreement sees relaxation on some import tariffs on either end.
- In the aftermath of the Coronavirus outbreak, US-China diplomatic ties begin to turn sour again.
- President Trump signs an executive order ending Hong Kong’s Special Status and issues sanctions against businesses that undermine its autonomy. Soon after, the countries closed their consulates as diplomatic tension escalates.
- US Secretary of State Mike Pompeo declared the severance of ties with China citing reasons such as intellectual property theft, unfair trade practices, and human rights abuse.
As such, US-China relations are currently in free-fall, with Washington sending mixed signals and Beijing trying to rope in the US to support its claim over Hong Kong.
What the US-China Conflict Means for Global Trade
While businesses have been aware of the turmoil on the horizon, nobody has been in a position to accurately predict the impact of the deadlock at the macro level. Let’s try and decipher what the US-China conflict means for global trade:
Impact on Manufacturing
Not just America, rather businesses all over the world rely on China for its mass manufacturing capabilities. It offers cheap labor, cheap resources, and infrastructural support, which gives it an edge over other countries like India, Brazil, and Mexico.
Resultantly, China has played a crucial role in the widespread usage of consumer electronics by making such technologies affordable and accessible. In fact, the country singularly successfully meets and serves the requirements of major US-based companies, such as Apple, etc. US’ reliance on China and other Asian countries is not limited to hardware and IT alone but also spills over into research and intellectual property.
Given that America’s IT and technology sector relies largely on China, the tension between the countries may leave a massive gap in this area.
Impact on Supply Chain
Naturally, any form of disruption at the manufacturing end will trigger a ripple effect within the supply chain as well. As a result, vendors can anticipate issues such as delays in delivery, shortages, or full-fledged breakdown. Such issues can cause further delays or disruptions in the subsequent stages of manufacturing and development.
Furthermore, another major roadblock to emerge in this area would be in the form of taxes imposed by the governments. High import taxes will restrict the movement of tangible/non-tangible goods and services. And in the process, the US would have to attain self-sustainability, considering that the country is not as resource-rich in comparison to China or developing countries.
Impact on Intellectual Property
Amongst other goods and products, intellectual property (IP) has been a bone of contention between the two nations. Unfortunately, the direction taken by both countries is not in the spirit of free and fair trade. The US IP Commission has been accusing Beijing of IP theft, which could potentially endanger national security. At the same time, Beijing has been denying these claims and releasing statements that Washington is hurling baseless, slanderous accusations.
As the IP war heats between the two countries, the cross-border sharing of information and technology would take a hit. Given that several Chinese companies enjoy a widespread presence in the US and vice versa, the rules and legislation regarding the sharing of intellectual property between the nations.
Impact on Global Innovation
In continuation of the issue regarding intellectual property, the matter relating to innovation is also worth observing.
Chinese companies have been aggressively pushing for low-cost strategies to catalyze innovation to compete on the global stage. In the last two decades, China has been a leader in this aspect, with a six fold increase in triadic patents.
However, with the deterioration of US-China ties, the US has also been formulating policies to promote initiatives. The political contingencies arising out of such infrastructural support could propel the US in gaining primacy in this sphere.
As such, the trade war will boost innovation in both countries.
As if the past decade has not been strenuous enough, the situation since the COVID-19 outbreak has aggravated the tension between two of the largest global economies. The countries are now competing with each other for the vaccine, which further complicates the relationship, especially with regards to intellectual property and research and development. As the US Government transforms under the Biden administration, one can only but hope that the US and China are successful in meeting each others’ expectations halfway.