In July of 2016, the US President imposed tariffs on China for practicing unfair trade practices. And since then has started the US-China trade war. The US has already imposed tariffs on 250 billion USD worth of Chinese products. It has also threatened China to impose tariffs on 325 billion USD more if it does not stop the unfair trade practices. In retaliation of the US imposed tariffs, China to has imposed tariffs on 110 billion USD worth of US goods. Moreover, they have also threatened the US that if they continue to impose tariffs on China’s trade, they will take quantitative and qualitative measures that would affect the US trade market.
This act of president Trump hit the Chinese stock market and it also made Wall Street start their day lower than usual. The former Chinese vice-minister of commerce has said that Beijing would now extend their countermeasures on the US tariff impositions. China will then take action against the service trade of the US which includes transport, tourism, and education. When the US president Trump announced that there would be 25% tariffs on Chinese goods worth 50 billion USD. China then responded by publishing a list of US products, listing everything from soya beans to cars, that as a retaliatory action, these goods would be subject to tariffs of the same scale and intensity.
This trade war is now at a seemingly slow pace, but once it starts, it would be the biggest trade war in the history of world. This trade war has affected the global economy heavily. The economists have predicted that if the US-China trade war continues, the global GDP will take a hit of about 600 billion USD by the year 2021.
This escalation in the trade war will have an impact on the foreign exchange market through all the possible channels. From a decade now, the world economy is facing a crisis. The Chinese economy has been witnessing slower growth rates recently, but the economic growth rates of China have been better and faster than the others. This has helped the world economy from larger economic crisis. The damage caused by these changing and increasing tariffs will be hard to recover from.
Because of the trade war between US and China, the world trade has halted to a low key. The world trade is a vital element in the growth of the global economy. The impact of this trade war would be so intense that it would affect the households, the businesses and other wider economies. This would easily lead to a downfall in the economy, as the economic growth is expected to reach down to 3.7% as against its predictions of around 3.9%.
The countries imposing the tariffs and the ones being subject to those tariffs will obviously face economic losses, but there will be collateral damage done to the neighbouring countries too. There will be losses in the economic welfare of these countries which will later be hard to recover from.
Therefore with the imposition of new tariffs by the US and China, the possibility of the trade war is increasing day by day. The countries involved, the US and China have most of their assets at stake, and it would be better for the world trade and the countries, to reach an agreement as soon as possible. The G20 summit to be held is looking forward to both the countries to resolve the trade issue and make an agreement that would benefit all.