20th century Trade War – The Reality A high-intensity trade dispute between two of the world’s largest economies — China and the US –is all set to effect global trade policies this year with the main focus being on protectionism. Although it seems there is still a chance the two sides will choose a fair deal over a trade war, but the odds are bleak. On April 3rd America put forward a list of 1,300 Chinese products it proposed to hit with tariffs of 25%. China had no intentions of backing down. Just a day later, China hit back as it produced its own list of items covering 106 categories. As America banned Chinese goods worth $46 billion, China responded by banning US goods worth $50 billion in 2017.
The trade war which began as a tussle to modify the power equation in the global scenario was finally reduced to a mere show of muscle between these two nations. US President Donald Trump continued to portray his dominance by further imposing 25% and 10% tariffs on steel and aluminum, respectively before temporarily exempting almost everyone, except for Russia, China, and Japan. The Communist Party-run governments countered further by releasing a list of goods slated for tariffs, including cars and farm products that had the potential of causing a political damage for Republicans. Fate resides mostly on how far Trump is willing to go to fulfill his goals. He has already made his intentions clear of imposing tariffs on an additional $100 billion of Chinese goods. US justifies the bans as a punishment on China for abusing American intellectual-property rights. This might be one of Trump’s many policies of reducing $376-billion trade deficit in goods with China.
The US is mostly banking on Beijing to blink first in the showdown over tariffs. However, such an outcome can be forseen nowhere in the distant horizon. It could be a while before any side backs down. In some recent developments, some US representatives have shown interest in talks with Beijing. “Our hope is that it doesn’t lead to a rash reaction from China,” U.S. Trade Representative Robert Lighthizer said in an interview with the Fox Business Network when the tariffs were made public. “We hope that this leads to further negotiations and we hope it leads to China changing its policies.” he added. However, the world is a far more complicated place than most people can contemplate. In the present scenario, there are several reasons why Trump might be both right and wrong. China’s theft of intellectual property, their aggressive Belt and Road initiative, the deeply troubling China 2025 initiative which violates international trade laws can be easily cited to validate the US stance. That being said, there are far better and less risky propositions compared to the current adopted tactics, including the WTO where the US has almost never lost a case against China.
As Michael Smart, managing director at Rock Creek Global Advisors correctly pointed out “A trade war can be anything from a minor skirmish to a full-blown battle, with lots of collateral damage to American workers, farmers and consumers. We’re not there yet, but it’s scary, because it seems like we’re on a path toward major conflict, and it’s hard to see the off ramp.” Whatever be the outcome of this ongoing tussle, one thing can be stated certainly that the equations of Global Politics will change and many new superpowers will emerge. New markets will open up and new trade links will be established. Change is the only thing constant in the 21st century.
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