Trade War

Since everything of late in the news is about Corona I’ve decided to juggle things up by moving back in time a little to furnish my insights on one major issue which shook the world, “The US- China” Trade War. This is an incident which should’ve occupied predominantly most of the pages of the newspapers but failed to do so, largely because its implications were underrated.

To be precise, this article’s focus is on the events which led to the trade war rather than the trade war itself which in my opinion is imperative to be understood.

The Red Capitalists:

The world’s most populated nation was once fully a socialist country with powerful governments assuming full control. For the past two decades however, China seems to have been caught in a tangle between promoting socialism on one side and promoting entrepreneurs on the other. China embraced the idea of capitalism a little too much for a country which has strong socialistic roots. ‘To be rich’ was one of the popular slogans among Chinese people. A country with passionate citizens is always a good sign but the Chinese however wanted their communist beliefs to thrive. In spite of all the chaos, confusion I’d say that the Chinese have been able to offer a balance between their socialistic principles and their capitalistic needs. Rightly, they became “The Red Capitalists”.

A country that was nowhere in the charts probably a few decades back, China is now seen at the top of the table only second to the US in many arenas. As a global market with huge growth potential and a stable government, several countries started investing in China. Slowly, China has started to dominate the world. China’s success is also largely attributed to its hard working and enterprising people. Currently, China is the world’s largest exporter.

On the contrary, the USA is the world’s largest importer. Hence, a trade war between both these two countries was a classic battle, with other countries(some benefiting and some others suffering adverse impacts) watching on the sidelines.

Primary causes of the war:

i) Chinese Robbers:

I don’t intend to demean the Chinese but this was one of USA’s claims against China.The United states based companies in China were being forced to enter into joint ventures with local Chinese companies thereby giving the local companies access to Intellectual properties, trade secrets possessed by the US multinationals. For companies operating in certain sectors it was mandatory to disclose their trade secrets to the government. Though these policies were unfavourable, it was impossible for the US based multinationals to ignore China because of the large market it offered.

ii) The Chinese peg:

Trust me, I’m a teetotaler. The Chinese pegged their currency. This in fact was the United States’ major problem. As imports by the USA from China increased rapidly the currency market caught several speculators’ eyes. When goods were imported by US traders/ manufacturers they paid their suppliers in dollars. These suppliers would obviously have to convert their dollars into Yuan( Chinese currency). So they threw these dollars into the currency market to buy Yuan. As more and more people do this, a situation would arise where too many dollars would chase too little Yuan. To counter this situation one solution would be to increase Yuan’s value(so more dollars would be needed for a unit of Yuan). But, the Chinese government tackled this situation by instituting a peg wherein  the value of one dollar in relation to yuan was fixed. Whenever there were too many dollars chasing too little Yuan, the Chinese simply printed Yuan to sustain the peg. All this may appear simple to the naked eye but it’s economic implications are severe. By initiating a peg, the Chinese artificially managed to keep the Yuan cheap. This made China, the import haven for US traders who found Chinese goods cheaper than goods manufactured in their own country. Also, when China prints Yuan and sells it in the currency market, it gets huge dollar reserves. Till date, according to certain sources China has managed to accumulate over 3 trillion dollars. “Well played China!”

This is also one of the reasons which prompted Trump to furiously promote the “Make in USA” campaign.  

War:

The trade war was characterized by a series of levies. It was  initiated by Trump when he increased tariffs on several Chinese goods. The Chinese did not give in easily and they responded with tariffs on US goods. The tit for tat levies continued on numerous occasions until the issue was resolved in 2020. These levies forced importers to search for alternative suppliers.

The war cost China, exports worth 35 billion dollars of which 21 billion dollars worth goods were captured by exporters of other countries while the remaining was captured by local US producers. India too enjoyed the incidental benefits of the trade war as exports increased by 755 million dollars.

The No.1 economy:

Over the years several countries have had their chances to dominate the world. Spain, France,and the UK had their time. Currently the world is being dominated by the USA. If at all the cycle repeats, then the only country that stands a chance to control the world would be China. To add to USA’s woes China and the rest of the world hold more than 10 trillion dollars in reserves. The USA is literally skating on thin ice. Imagine what would happen if all these countries dump their dollar reserves in the currency market. The US economy is bound to fall apart.

Conclusion:

Gone are those days when one man’s loss was another man’s gain.  What essentially should have been an issue that merely bothered two countries, affected the entire world. Stock markets of nearly all the countries were impacted. With the whole world connected in too many respects, it is only possible for us to grow collectively. However as long as greed drives the human race, this lesson will never be understood.