To understand the trade war between the U.S and China, you must need to know what a trade war is and how it affects economic and human life. Trade war began when a country tried to protect its domestic industries and generate vacancies. In simple words, A trade war is when a nation applies taxes and limitations on imports and abroad nations retaliate along with trade protectionism. Resultant of his step, The number of foreign trade decreases.
A trade war works for a short time period but for a long time, it costs jobs. It affects the economic growth of the countries involved.
For the short term, trade war works due to domestic producers getting advantages of that product as their prices drop in comparison to previous prices. As a result of this, the producer started receiving more orders from the local customers. Due to this, their business started growing fastly which increased job vacancies.
Trade Wars and their result on Financial Market
The international economy is confronting both COVID-19 and big powers geopolitical battles. The friction between US-China divides the international market into two parts. The Biden administration ruling in hope of the future orders and imports is totally depending on the US leadership. Biden has announced his government will concentrate on a middle class centred abroad policy and trade policy that will open the door for American workers interested by encouraging similar growth.
China had selected various different trade plans from the enhancing inward-looking economic policies of the US. In revert to the US trade war, China launched a sequence of exclusive measures to open up trade and investment. Foreign investment in China has eventually enhanced significantly. In the Asia Pacific, China and 14 other nations favourably arrange the Regional Comprehensive Economic Partnership (RCEP) in 2020 November. Resultant of this, intra-regional trade will enhance and the region is feasible to become the globally bigger free trade zone along with its approval and execution. Chinese and EU authorities declared negotiations competition on the EU-China Comprehensive Investment Agreement. China may also announce their plans to join the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership).
China has carried on with accelerating investment and trade liberalization, pursuing a domestic reform agenda and security considerations. The most important question that arises is whether these Chinese plans will work in regaining the rule-based global trading system or drag back against global fragmentation. As per the records, China is currently the biggest trading partner of nearly all Asia pacific nations.
March 8 2018, The U.S Administration has declared a 25% tax on steel and 10% tax on aluminium imports. America’s capabilities to generate steel and aluminium for national securities get scared by the dependence on imported metals. The Department of Aerospace also said that new taxes may also raise the military’s costs. Only the US Congress had the authority to applicable taxes in previous years. But from 1962, The president also got the authority to control imports that were bullying national securities. The world trade organization does not deal with trade disputes that consist of security issues.
The U.S. authorities may also apply taxes and quotas on the imported Chinese washing machines and solar panels. China leads all the countries in solar equipment manufacturing. In the same year, after two months, Trump declared that he requested China to create a strategy to decrease the trade deficit by $100 billion. As per the news, China said that these taxes can’t stop Americans from demanding inexpensive Chinese products.
On March 22, 2018, The U.S authority declared taxes of $60 billion on Chinese imports. According to U.S. authorities, China uses espionage, cyber theft, and government pressure to gain advanced-edge technology. In revert of this China imposed $3 billion of taxes on the import of fruits, pocks, steel pipe, and recycled aluminium. This trade war will continue the whole year. At last, on February 27, 2019, the administration leaves the threat of imposing 25% taxes. This plan was going to take place from January 1 which was shifted to March 1, then the plan was dropped.
Big Events of U.S.-China Trade War
For centuries, we are becoming part of the biggest U.S. Trade war with China. In 2018, the U.S. trade war with China bears the loss of $419 Billion. The U.S. invested $540 Billion primarily in computers, apparel, and mobile phones. Most of the products are made by U.S. companies situated in China but are still called imported. The transaction of $120 billion was done by the U.S. authority to China which includes commercial aircraft, machinery, Medical instruments, optical, and vehicles.
In incorporation to decrease the trade war effect, U.S. President Trump has required the U.S. to bound technologies imported to Chinese Companies. Chain is always in search of foreign countries who want to sell their products in the chain to know their trading style. The administration may also request China to stop giving subsidies to the top 10 industries which participate in the “Made in China 2025” scheme. These 10 industries consist of robotics, software, and aerospace. China is not ready to agree to Trump’s demands. It may also plan to open the world’s primary artificial intelligence centre in nearly 2030.
These conflicts may lead Trump’s administration to apply three taxes on a total of $250 billion on Chinese imports. The cost of these three tariffs is $414 per annum as per the estimation of The Federal Reserve. In 2019 The U.S. administration may also apply the fourth tax with the addition of 20% tax on $200 costs of materials. After this Trump was forced to enhance tax with an increment of $325 billion of Chinese imports which increased the prices of all Chinese imports. Trump wasted a lot of time in renewing the trade exchange with China.
China launched a homemade Digital Currency of $6.2 million.
China launched 40 million renminbi ($6.2 million) costs of digital currency which the authority is distributing to citizens in Beijing as a form of lottery. The Chinese authorities are giving chance to the residents of the capital to win one of 200,000 so-called red packets by the use of two banking apps as per the Beijing Local Financial Supervision and Administration Bureau. Each packet consists of 200 yuan of digital currency which can be spent with selected dealers. The authority provided a deadline of June 7 at midnight.
The government has launched digital currency on a trial basis which has been developing since 2014. The world’s second-biggest economy is waiting to introduce the digital yuan to the international market. As per the April announcement of the Deputy Governor of the People’s Bank of China that central bank will open more sources for its major project and it may also give access to the foreign visitors at the 2022 Beijing Winter Olympics to use it.
For further strategies, The authority decided to distribute the digital yuan costing 40.2 million yuan in the southwestern Chinese city of Chengdu. Last year, Lotteries took place in the Chinese technology hub of Shenzhen.
The digital yuan is not working on the theory of cryptography. It is not like other cryptocurrencies such as bitcoin. It is published by the central authority (PBOC) while other cryptocurrencies are decentralized. It is a big step for China which helps China to step forward in the race of trade war. PBOC is targeting to digitize bank notes and coins inflow.
As per the PBOC Deputy Governor declared that the digital yuan was only for domestic use and they are not trying to overtake the dominance of the U.S. Dollars. China is continuously testing the digital yuan will work as the authorities renew a fall down on the cryptocurrency sector in the country. The country banned cryptocurrency exchange in 2017. Due to this, regulators are now moving their concentration to break down on bitcoin mining.
Some other Chinese Product Leading China forward in Trade War
iPhone is stepping back in the smartphone war in comparison to China’s Xiaomi in Asia. This is because iPhone X has created a new benchmark for smartphone costs. The prices are very high in comparison to other smartphones. The cost of the iPhone is the main reason behind the Chinese challengers to overtake market shares. Smartphone buyers from all over the world are moving towards Chinese smartphone companies such as Xiaomi Crop – sometimes known as “The Apple of China” which includes BBK Electronics Corp. product Oppo and Vivo.
Popular Chinese App
Mobile applications which are created by some of China’s biggest technology firms have been used by the U.S. residents in the previous few years, enhancing how companies are generating profits beyond their home ground and Asia. As per data issued by Sensor Tower for CNBC- These apps were developed by Chinese firms or companies along with large Chinese investors, generating revenue of $674.8 million in the U.S. According to the mobile app searching firms which only focus on the top 100 applications by revenue which download from the Google App store and Apple’s Apple store. As per their record, 22% of revenue is generated by Chinese apps from the top 100 apps.
Solar Panel Equipments
It takes a lot of effort to make the U.S. a meaningful competitor in the product of solar equipment. China is the dominant player which operates 80% of the global solar manufacturing supply chain. Only a few American solar manufacturers are left in the global market. Only 40% was solar of the total new electrical capacity established in the U.S. last year. The price of solar panels has fallen by 70% in the last 10 years because it consists of a huge part of Chinese products.