Concerns with US-China Trade Wars

Why in news?

Recently U.S. and China imposed new tariffs on $16 billion imports from each other.

What is the tariffs wars about?

• China and the U.S. have tariffs on imports of $50 billion from each other.
• In July U.S. announced plans to have tariffs on $200 billion of Chinese imports, and US was ready to impose tariffs on all imports from China.
• The U.S. imports from China totalled $504 billion in 2017.
• US administration believes that since the U.S. imports from China are more than its exports to China, it would win any tariff war. That is an untested claim.

What is the reason behind USA’s action?

• US administration’s main target is China, which is accused for “economic aggression,” but the war is total.
• Key military allies of the U.S., Canada, Germany, South Korea, Japan, and Turkey are today locked in multiple trade disputes with it, being fought at multiple forums.
• So are countries such as Mexico and India, close partners of America, though not military allies.
• For USA’s administration, free trade means trade that is free, fair, and reciprocal and balanced, which means Zero tariffs.
• But China, Japan, Germany and South Korea, among others, of being in violation of the above principles.

What are the concerns with USA’s tariffs?

• In January, the administration imposed tariffs on import of washing machines and solar panels to America.
• China and South Korea took the issue to the World Trade Organisation (WTO).
• The U.S. would respect decisions by the WTO when they are in its favour and reject the rest.
• Tariffs of 25% on steel and 10% on aluminium on all trading partners, announced in March citing national security grounds, in an unprecedented move, have also kicked in.
• The EU, Canada and Mexico, which supply around half of all steel and aluminium imports to the U.S., retaliated with their own tariffs.
• The U.S. has filed WTO complaints against several countries that imposed retaliatory tariffs.

What is the way forward?

• The U.S.’s annual trade deficit is around half a trillion dollars. China accounts for 50%, the EU accounts for 20% and Japan and Mexico combined make 18%.
• US administration believes that this nothing to do with competitive advantage of others but happens only because of the unfair practices of America’s trading partners.
• The surplus earned by China comes back to the U.S. economy as investments and US administration is also cracking down on Chinese investments in U.S. companies.
• Bringing traditional manufacturing back to America is a difficult task, and American policy makers are conscious of that fact.
• Thus the trade war appears more focussed on stopping China from commanding the lead in technologies of the future.

Source: The Hindu