The Last Thing the World Needs Today; The US-China Rift

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The economic change in the past few years had diversified how trade works between the different regions.

The Last Thing the World Needs Today is the US-China Rift. A war fought without a bullet being fired or a single bomb being dropped but both the USA and china have lost billions of dollars. And its impact is global. USA wasn’t liking the fact that another super power was emerging and bells started to ring when in 2018 the Trump administration imposed trade tariffs on China.

Though every time Trump is questioned about the economy he starts comparing the corona virus to the Pearl Harbor and the world trade center, he calls it an attack the US history has never witnessed before. This blame over the corona virus pandemic has reignited tensions between the United States and China, threatening to break what was already a fragile truce on trade between the world’s biggest economies. The economic change in the past few years had diversified how trade works between the different regions.

So what is the US-China trade war all about?

To understand the deal and the trade war between the two world powers, one needs to tackle the roots of it. Trump has been playing the tariff card since the past two years and this policy has left Beijing’s subsidies for home growing industries and its firm control over crucial levers of its hard-charging economy on a dangerously hanging rope.

The deal also keeps in place most of Trump’s tariffs on $360 billion worth of Chinese goods, a much heavier tax than Americans pay for products from practically anywhere else. But so far, both the countries are ready to take the hit. The situation seems to be going towards the mercantilist ground dog way. In contrast, although weakening slightly in recent years, China’s economic growth has been robust.

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According to the World Bank, China could surpass the US to become the largest economy in the world by the middle of this century. In combination with other factors, such as geopolitical interests and the two countries’ polar opposite political systems, this has led to an increasingly adversarial posture between the two economic superpowers, as China establishes itself on the world stage.

The Trade Imbalance

This tension has manifested in trade discussions, largely due to the significant trade imbalance that exists. This is also differencing the US trade deficit. The US runs an aggregate trade deficit in goods with the rest of the world, about half of which is due to the imbalance with China. More specifically, the US runs a trade deficit in goods with the EU and the rest of North America, at about 19% and 13%, respectively, in 2019.

Asia accounted for the largest source of the US trade deficit in goods in 2019 at 57%, with China accounting for a massive 45% of the total. So while US-China trade is a significant contributor, the US trade deficit is not solely due to its trading relationship with China, rather, it is the result of the consumer-oriented disposition of the US economy, the gradual migration of labor-intensive activities offshore, and the relative strength of the US dollar.

To date, additional tariffs placed by the United States cover around 70% of total imports from China . China has countered by introducing its own additional tariffs, leading to a situation where the tariff hike covers a majority of trade in goods between the two countries.

In addition to the tariffs imposed on China, the United States has announced that it is still considering an additional 25% tariff on the import of cars and car parts from countries outside the North American Free Trade Agreement. China is not a country that has an uncompromising approach towards what’s going on and this current tension has moved to Africa and south Asia too.

Infrastructure Games

The Chinese government has been investing in building infrastructure in the African region, building ports, roads and railways. The value of China-Africa trade in 2017 was $148 billion, down from a high of $215 billion in 2014. According to statistics from the General Administration of Customs of China, in the first half of 2019, China’s total import and export volume with Africa was $101.86 billion, up 2.9% year-on-year.

China recently launched a $1 billion Belt and Road infrastructure fund for Africa, and last year delivered a whopping $60 billion African aid package, further consolidating its robust economic influence. And after decades, America has a competitor in this region. While the U.S.-China rivalry is already underway in Africa, American experts suggest that these riding tensions would not be advantageous for Beijing, Washington or African capitals.

CPEC and US-China rift

Similarly , US has opposed the project of the Chinese-Pakistan Economic corridor and keeps warning Pakistan regarding this project ,associating it to a project used by Chinese to gain influence in the region claiming that there’s lack of transparency involved in this deal and increases Pakistan’s overall debt. For China, Belt and Road is a cooperative infrastructure project among 68 countries and all regions based upon good-will and inclusiveness.

So basically, china isn’t alone in this rift, it’s turning global. Given the current pandemic situation, The world economy has weakened. News updates on the current negotiation situation have caused volatility in share prices and securities market risk, but significant disruptions on the financial markets have so far been avoided.

2020 already feels like a petrifying roller coaster ride and these tensions between china and America makes this ride even bumpier. Everyone literally living to survive this pandemic has the their fingers crossed and is hoping that this wouldn’t escalate. But the question remains ,who’s winning this war?

Even though history gives the best answer to this question, that is ,no one wins a war, administrations contemplate they are winning. But if one analysis statistics, America does have a upper hand in this because of its greater geopolitical stance and bigger GDP per capita.

This isn’t the first time the world has witnessed a standoff between the world’s super power and the second power. Peloponnesian war is an older example and the most recent one perceived is the cold war and America ended up bankrupting soviet union into extinction. This suggests that the longer this trade war goes on the more it will hurt both the parties involved.

Which raises another question often asked of any war, was it worth it?

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