Trade War: When Elephants Fight, It Is The Grass That Suffers

April 26, 2018

The Trump administration drafted a 25% tariff on over a thousand Chinese products earlier this month. This action seeks to sanction China for its trade practices that, according to the White House, have placed an unfair burden on American industry and trade practices. The tariffs add up to $3 billion on steel and aluminum products from China, escalating the tensions between the two world powers.  

 

The tariffs are estimated to be tantamount to $50 billion, focusing intensively on technologically advanced products, like electric vehicles and medical products. President Trump posted on his Twitter account, “When a country (the US) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win.” Idealistically, Trump sets out to restore American jobs that have been “stolen” by workers and he believes these tariffs will do just that.


 

Just a few hours after the tariffs were imposed, China fired back with plans for its own tariffs. According to the China Embassy in the United States, the government of China is “deeply disappointed” by this protectionist action and states that this conflict would benefit “neither China nor the United States.” However, Zhu Guangyao, the vice minister of finance, suggested that the Chinese government would “never succumb to external pressure,” and that they were willing to fight the war “to the end,” forecasting future economic aggression towards the United States.

 

In their reported plans for revenge, China specifically targets America’s imports of agricultural goods. The growing world power has little reasons to succumb to America’s tariffs. Although the Chinese economy relies more on exports and, therefore, creates more room for American goods, the Asian giant “also has much greater control over the economy, allowing it to shield the public from job cuts or factory closings by ordering banks to support industries suffering from American tariffs. It can spread the pain of a trade war while tolerating years of losses from state-run companies that dominate major sectors of the economy,” according to the New York Times.

 

Even then, the trade “war,” as predicted by some economists, is unlikely to happen. According to Ruchir Sharma, the author of “The Rise and Fall of Nations: Forces of Change in the Post-Crisis World” and the chief global strategist at Morgan Stanley Investment Management, it takes decades of conflict rooted in trade protectionism from the world’s great economic powers in order to possibly result in a trade “war.” However, the considerable size of the tariffs will have quite an impact on the economy of the world, and this is agreed upon by the leaders of Japan, China, and other Europe countries as well.

 

There has been much debate on who is going to “win” this ongoing tit-for-tat battle that has erupted over the course of the last few days. However, if things get out of control, negotiations fail to work, and the world is really in the verge of a trade “war,” there’s no question that the ultimate victims will be the people of both countries.

 

The famous economist Paul Krugman explains that “trade is not a zero-sum game,” and that it serves to enhance a country’s overall economy, especially benefitting its consumers. Globalization often creates a cheaper manufacturing process, which is passed on to the consumer in cheaper goods, stimulating consumption. For the two biggest economies in the world to practice protectionism prevents consumers in both countries from economic opportunities and choices.  Although it is unlikely to happen, the trade war will impact not only global economies but also the individuals who work within those economies. 

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