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In essence, a trade war uses trade mechanisms such as import tariffs and trade embargos to affect the outcome of another country’s political, ideological, or economic agenda. Trade friction between China and the U.S. as the two largest economies globally has been a longstanding house of cards, teetering back and forth for decades. Yet, despite the agendas that drive trade wars, the resultant industry shifts can have far-reaching implications on the global economy and often result in unexpected consequences. The repercussions of such sanctions are almost always detrimental to those involved and often extend into global implications.
Since the beginning of this trade war in 2018, the U.S. has seen slowed economic growth, business investment has mothballed, and companies have dramatically reduced their new hires. Similarly, China saw slowing growth in the manufacturing sector and pressure on industrial output growth, which has taken a bite out of its typically flourishing industrial economy.
The Timeline
January – March 2018 Let the Game of Tariffs Begin
To make his mark on American Industry, President Trump began a campaign intended to address the countries growing trade deficit. As a first-order, Washington imposed several tariffs over three months, starting with solar cells and washing machines and ending up with 25% tariffs on steel and a 10% tariff on aluminum. While neither action was directly aimed at China its widely believed that these were the first moves against the competing superpower.
April 2018 – China Made its Move & The U.S. Implements Bans
China fires back in response to the steel and aluminum duties with about 3 Billion USD worth of tariffs on U.S. goods targeting 128 products.
In response, America makes its first openly China-centric move and bans selected Chinese corporations from buying U.S. technology. The U.S administration also imposes fines for doing business with North Korea and Iran.
The Consequences – Rules of Origin
These fines are still in play today, complicating import processes for businesses across the globe. The new murky rules of origin still leave many importers confused about tariffs, duties, and embargos, often finding themselves in unexpectedly expensive situations. The nationality of a processed product, such as highly divisible technology, is often hard to determine and can lead to unforeseen import costs. Ultimately the rules of origin stemming from the trade war have left the Tech industry particularly at the mercy of various customs authorities. To assist with these technical import details, you may need to reach out to a compliance specialist. TecEx will partner with you for a tailor-made import solution.
June 2018 – Escalated Tension After New Tariffs
The USA implements a 25% tariff on 50 billion USD in Chinese goods. Motivation for this move is given as China’s alleged theft of intellectual property and technology and its other unfair trade practices. Beijing quickly retaliates by announcing tariffs on 50 billion USD in American products.
The Consequence – Cost of Goods
Because world trade, especially between the world’s largest economies, doesn’t happen in a vacuum, the web of the global economy affects the cost of goods in many countries across a vast range of products. Ultimately the global supply chain, which is intrinsically interconnected, is stunted by tariffs and duties, even as an unintended consequence, leaving prices inflated and consumers and other economies under pressure to fill the gap.
September 2018 – The U.S. Up the Ante
Washington announces 10% tariffs on 200 billion USD in Chinese goods, with a plan to hike the rate to 25% at the start of 2019. The President then threatens additional tariffs on 267 billion USD in Chinese products if Beijing retaliates.
China does retaliate, saying it will add tariffs on 60 billion USD in U.S. products as a response to the latest U.S. duties.
Dec 2018 – An Almost Truce and A False Alarm
Trump and Xi meet at the G-20 summit in Argentina. The U.S. decides to delay a planned increase of the tariff rate on Chinese goods from 10% to 25%. Both parties commit to negotiating a trade deal within 90 days.
August 2019 – The U.S. Adds More Tariffs
Washington announces the U.S. will add additional tariffs of 10% on 300 billion USD worth of Chinese goods.
August 2019 – The U.S Delays Latest Duties
Washington delays duties on more than half of the 300 billion USD in imports until Dec. 15. Washington cites the holiday shopping season to explains the move. A large portion of the products will still be affected as of Sept. 1
August 2019 – China Retaliates Again
In response, Beijing says it will impose new tariffs on 75 billion USD in American goods and restart duties on U.S. automobiles. Furthermore, it threatens further duty hikes of between 5 and 10% that will take place over two rounds on Sept. 1 and Dec. 15.
The prospect of a truce being formed looks unlikely.
October 2019 – The U.S. Announces Phase One Deal
Washington announces the U.S. reached a deal with China. The agreement covers topics such as intellectual property, financial services, and agricultural purchases. The U.S. also commits to scrapping further tariffs set to take effect on Oct. 15. However, disagreements quickly break out over tariff relief, and both sides fail to ink the deal for months. The U.S. Commerce Department puts 28 Chinese companies on its “entity list,” which further adds to the complexity of rules of origin trade around the world.
December 2019 – U.S. and China Strike Agreement, Finally
Both sides announce they have reached a trade agreement. As part of the transaction, the U.S. agrees to cancel the Dec. 15 tariffs and cut other duties in half, while China states it will buy more U.S. agricultural goods.
2019 to Now
- U.S. tariffs – 25% levies on 250 USD billion worth of Chinese industrial goods and component exports are active.
- China tariffs – Retaliatory tariffs on more than 100 billion USD in U.S. goods imports are still in play.
- Chinese imports – For 2020 and 2021, China is bound to satisfy pledges to increase the purchase of American goods and services by at least 200 billion USD.
August 2019 – China Retaliates Again
In response, Beijing says it will impose new tariffs on 75 billion USD in American goods and restart duties on U.S. automobiles. Furthermore, it threatens further duty hikes of between 5 and 10% that will take place over two rounds on Sept. 1 and Dec. 15.
The prospect of a truce being formed looks unlikely.
October 2019 – The U.S. Announces Phase One Deal
Washington announces the U.S. reached a deal with China. The agreement covers topics such as intellectual property, financial services, and agricultural purchases. The U.S. also commits to scrapping further tariffs set to take effect on Oct. 15. However, disagreements quickly break out over tariff relief, and both sides fail to ink the deal for months. The U.S. Commerce Department puts 28 Chinese companies on its “entity list,” which further adds to the complexity of rules of origin trade around the world.
December 2019 – U.S. and China Strike Agreement, Finally
Both sides announce they have reached a trade agreement. As part of the transaction, the U.S. agrees to cancel the Dec. 15 tariffs and cut other duties in half, while China states it will buy more U.S. agricultural goods.
2019 to Now
- U.S. tariffs – 25% levies on 250 USD billion worth of Chinese industrial goods and component exports are active.
- China tariffs – Retaliatory tariffs on more than 100 billion USD in U.S. goods imports are still in play.
- Chinese imports – For 2020 and 2021, China is bound to satisfy pledges to increase the purchase of American goods and services by at least 200 billion USD.
The Consequences – Trade Diversion Effects
The trade war hasn’t been all bad news. Rather than simply paying higher prices for taxed resources, new markets emerge worldwide as China and America seek more competitively priced products. Places such as Brazil, Taiwan, and parts of Europe become more significant suppliers of items affected by the trade war.
The Consequences – Worldwide Shortages
However, the renewed demand has also increased strain on new markets with insufficient infrastructure to meet global needs, and new order flows. This results in worldwide shortages of products. Notable is the shortage of microchips spurred on by drought in Taiwan and encouraged by the U.S., barring China from accessing vital technologies needed to start producing microchips of their own.
In Conclusion
While there seems to be more pain than gain for the feuding superpowers, the consumer bears the brunt of increased costs brought about by this trade war. As global businesses seek more reliable alternative markets away from feuding nations, the results divert trade flows that negatively affect the participating countries and confuse importers worldwide. As a new administration enters Washington, it is still unknown whether there is an end to this feud in sight.
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