The time has never been better for companies to diversify their supply chain away from China. But...
Status Of The US-China Trade War
When the US-China trade war broke out in 2018, many were surprised. Prior to the outbreak, the two countries continued to throw jabs at one another for years due to their increasingly strained economic relations.
However, the sudden escalation by the Trump Administration came out of nowhere and was met with much scepticism seeing as the two countries were each others’ largest trading partners. In this article, we will be discussing the US-China trade war.
More specifically, we will be looking at how the trade war began, the list of tariffs imposed by both countries, the Biden Administration’s policies towards the Trade War, and its impact on the US, Chinese, and ASEAN economies.
Background
Prior to his time at the Oval Office, Trump had made correcting the unfair trade practices the Chinese government aimed at the US, leading to the US’ trade deficit with China, a major cornerstone of his campaign. The Brookings Institute writes that, upon entering the Oval Office in 2016, the trade deficit was approximately USD 346 billion.
Trump laid out a plan to correct unfair trade practices and reduce the deficit by: 1) Confronting China and declaring them a currency manipulator; 2) Confronting China on alleged IP theft and technology transfers under coercion; 3) Ensure China reduced export subsidies and improved labour laws and environmental standards; and 4) Lower US corporate tax rates, improving US manufacturing output.
Analysts argued the currency manipulation made Chinese goods more competitive (price-wise), and that IP theft and forced tech transfers helped ensure Chinese tech’s competitiveness. Concurrently, subsidies and lax labour laws, environmental standards helped reduce costs and risks associated with exports, encouraging Chinese companies to export en-masse, writes the BBC.
Tariffs Imposed
The value and types of tariffs imposed by the two countries on one another occurred as listed in the timeline below (Info comes from the Peterson Institute for International Economics):
2018
- 7 Feb: US implements tariffs on solar panels, washing machines
- 23 Mar: US implements tariffs on steel and aluminium
- 1 May: Chinese cuts MFN tariff on pharmaceuticals
- 1 Jul: Chinese cuts MFN tariff on consumer goods, automotives, IT products
- 6 Jul: US List 1 tariffs of 25% (~USD 34 billion); Chinese retaliation (~USD 60 billion)
- 23 Aug: US List 2 tariffs of 25% (~USD 16 billion); Chinese retaliation (~USD 16 billion)
- 24 Sep: US List 3 tariffs of 10% (~USD 200 billion); Chinese retaliation (~USD 60 billion)
- 1 Nov: Chinese cuts MFN tariffs on industrial goods
2019
- 1 Jan: China suspends retaliation on US auto parts and goods and reducing 2019 MFN tariffs
- 7 Feb: US reduces tariffs on solar panels
- 1 Jun: US List 3 tariffs increase from 10% to 25%; Chinese retaliation (~USD 60 billion)
- 1 Jul: Chinese MFN tariff cut on IT products
- 1 Sep: US List 4A tariffs of 15% (~USD 300 billion); Chinese retaliation (~USD 75 billion)
2020
- 7 Feb: US reduces tariffs on solar panels and washing machines
- 8 Feb: US extends import tariffs to products that use aluminium and steel
- 14 Feb: US List 4A tariffs of 15% cut to 7.5%; Chinese retaliatory tariffs imposed against List 4A tariffs cut in half
- 1 Jul: China MFN tariff cut on IT products
2021
- 1 Jan: China adjusts MFN tariffs for 2021
- 7 Feb: US reduces tariffs on solar panels and washing machines
- 1 May: China MFN tariff cut on certain steel products
- 1 July: China MFN tariff cut on IT products
2022
- 7 Feb: US reduces tariffs on solar panels and washing machines
Biden Administration
During President Biden’s first year, the trade war issue was largely left untouched, beyond the easing of steel tariffs. The Biden Administration, instead, focused its efforts on combating the COVID-19 pandemic and the resulting economic fallout, writes Politico.
However, political relations between the two countries have worsened, especially with regard to Taiwan, reports Politico. The new Indo-Pacific Economic Framework risks straining political and economic relations further, as the Chinese Government sees the larger Indo-Pacific conception as a front by the US aimed at kerbing Chinese expansion
Recently, following calls with President Xi, President Biden is considering the prospect of reducing if not eliminating the Trump-era tariffs in response to soaring inflation. According to CNBC, analysts are still divided on whether the reduction would have a real impact on inflation, but recognise it is perhaps one of the few instruments President Biden has that could affect inflation.
Impact on the US and Chinese Economies
The Brookings Institute wrote the following on the effects of the trade war on the US economy: “Numerous studies have found that U.S. companies primarily paid for U.S. tariffs, with the cost estimated at nearly $46 billion. The tariffs forced American companies to accept lower profit margins, cut wages and jobs for U.S. workers, defer potential wage hikes or expansions, and raise prices for American consumers or companies…
On the other hand, “China also felt economic pain as a result of the trade war, though apparently not enough to capitulate to the Trump administration’s core demands for major structural reform. Indeed, as the trade war dragged on, Beijing lowered its tariffs for its other trading partners as it reduced its reliance on U.S. markets.”
Impact on ASEAN Economies
According to the Institute of Developing Economies, the trade war affected ASEAN economies quite significantly, seeing as the US and China are ASEAN Member States’ largest trade partners and China is a source for more sophisticated, capital-intensive imports.
However, heightened tensions have led many foreign companies to shift production out of China and relocate to other destinations including ASEAN, to the benefit of many ASEAN Member States with more mature manufacturing capabilities such as Vietnam, Thailand, and Singapore.
Conclusion
Evidently, the US-China trade war did not go to plan. Regardless of the initial motive behind the war, the pile up of tariffs caused headaches for the Biden Administration and led to genuine economic ramifications for the US, Chinese, and ASEAN economies.
These types of trade wars do not happen in a vacuum, however. There were some signs of economic relations becoming more and more strained. It is important to keep track of these big geoeconomic developments, the ramifications of which can be significant for you and your company