The two great economic powers of the world: USA and China, have finally engaged in a trade war from the mid night of 6th July, 2018. The US administration imposed 25 percent tariff on Chinese goods to the tune of 34 billion US dollar. The tug of war between the two super economic powers was going on for a long time and both the governments were threatening each other about taking measures and counter measures. However, the trigger was finally pulled by President Donald Trump, and the Chinese Economic Ministry’s Spokesman gave warnings that retaliatory actions would be initiated soon. While America has imposed tariffs on different Chinese products, especially electronics, toys, aluminum steel etc, China, on the contrary, is expected to impose retaliatory 25 percent duty on US cotton, pork, soybean oil etc. President Trump earlier warned that if China takes retaliatory measures, then US might extend her tariff lists to other Chinese products.
President Donald Trump during his election campaign made few pledges to American people which ultimately made him the most powerful man in the world. The other important commitment made by him was to build a wall in the southern part of the country bordering Mexico and also to realize money from Mexico for the construction of the wall. The other election promise was to withdraw from trans-pacific partnership and to renegotiate with NAFTA partners to get a better deal. He was extremely critical about the US trade imbalance with China and stated that when he would become the President he would impose counter duties on certain Chinese commodities imported by the USA. The trade deficit of USA with China was USD 566 billion last year and the President, soon after assuming his responsibilities, wanted to narrow down this gap in no time. In order to do so he selected the very simple arithmetic of imposing duties and countervailing duties on Chinese products. President Trump’s chief economic advisor Gary Cohn resigned during April this year because of his difference of opinion on tariff matters and other economic issues.
China accused the US of launching “the largest trade war in economic history” saying it was typical trade bullying that could trigger a “global market turmoil”. The trade war between the two giants has already made negative impacts on the stock market in some Asian Bourses. Shanghai stock market index showed 3 percent low on Friday and although Tokyo Stock showed 1 percent increase, Hong Kong has shown 5 percent downward trend in the market. If the stock markets around the world remain unstable then it would have long run negative impacts on the capital markets and thereby create depressing economic situation around the globe.
China accused President Trump of violating all the rules and regulation of WTO while imposing 25 percent tariff on Chinese products. It is not only true on Chinese products but US has also imposed tariff on products coming from EU countries, Russia, Canada etc. If any pressure comes from this rule based World Organization (WTO), then President Trump said that he would not mind to withdraw his country’s membership from this body.
Meanwhile, the Russian Federation has meanwhile requested for WTO dispute consultations with the US regarding US duties of 25 percent and 10 percent on imports of steel and aluminum products respectively. Russia claims that impositions of duties are inconsistent with the provision of the WTO General Agreements of Tariff and Trade (GATT) 1944 and agreement of safeguards.
The economists around the world are under the impression that this trade war is expected to make obstacles in the supply chain of production. The imposition of tariffs by US will have a chain effect not only in Chinese companies, but also in manufacturing companies of other countries. A number of foreign companies have invested in China and it is known that 59 percent investment in China belongs to US companies and the present trade war will definitely hamper the US interest in China.
Bangladesh is likely to be affected in the near future as the American cotton and other consumer products will face excessive tariffs in China. If the export of cotton from US is affected then other cotton producing countries in the world will increase the price. Then, we will have to buy raw cotton at a higher price to produce yarn/fabric. The ultimate sufferer will be the final consumers.
It is not desirable that this stalemate should continue for a long time. In fact, no country will be benefited by imposing tariffs and other duties in such ways. US can reduce the trade gap in the long run with China through negotiations and attempts to export more products. Moreover, WTO should also try to bring all the parties in the negotiating table in order to find a reasonable solution of this crisis.
The writer is Managing Editor, Bangladesh Post