U.S.-China trade war is already ranging in full swing.
Unless compromises are reached, there are likely implications for the entire world economy.
How is the Trade War taking shape?
After exchanging several threats lately, both the United States and China have now implemented a tariff of 25% on imports worth $34 billion.
While this trade war is far from the biggest the world has seen, it has the potential to cause some significant damage to the world economy.
Significantly, Chinese imports to the U.S. are valued over $500 billion per annum and U.S. President Trump has vowed to tax all Chinese imports soon.
Trump has already imposed tariffs on imported solar panels and washing machines, and is moving swiftly into other domains.
These moves against China will likely resonate with voters who perceive the trade deficit with China as a loss to the U.S. economy.
Not surprisingly, China has responded by targeting American exports like soybean and automobiles, a move that could cause job losses in the U.S.
It is to be noted that U.S. has also imposed some tariffs on its other trading partners like European Union, Mexico, and Canada – who’ve also retaliated.
How does the future look?
Specific Perspective - In a globalised world, no country can hope to impose tariffs without affecting its own economic interests.
Such hike in tariffs will make goods costlier for domestic customers and also affect producers who are dependent on international supplies.
U.S. Federal Reserve has stated that economic uncertainty due to the trade war is already affecting private investment in the U.S.
The entire episode could also isolate the U.S., which has refused to settle differences through serious negotiations.
Notably, 11 Asia-Pacific countries went ahead to sign a trans-Pacific trade deal while leaving out the U.S., was an indication of this possibility.
China is fighting an economic slowdown, and its problem of debt and unsold inventories are likely to worsen if tensions escalate.
Larger Implications - The current U.S. initiated trade war is contagious and can catch up to other countries (or trading blocs) too.
It is a threat to the rules-based global trade order which has amicably handled trade disputes between countries for decades.
If these tensions prolong, countries may resort to destructive measures such as devaluing their currencies to support domestic exporters.
The world economy, which is on a slow path to recovery since the 2008 financial crisis can ill afford such unnecessary shocks.
