The multilateral trade system is constantly under the pressure of US unilateral decisions from the past year through the increase of import tariff for some of the trading partners specifically china. This led to an increase in the trade deficit of a country. As per the recent research facts and figures, the trade deficit of US with China has been increased to about USD 363 billion which are amongst one of the highest recorded bilateral trade deficits (Comtrade, 2018).
The tariffs could backfire as this makes the selling of goods harder for some of the American companies overseas if other states retaliate. There are many agricultural companies in the USA that are warned to be stuck among the trade war. Most of the products that were facing the consequences of these threats are consumer products such as; dishwashers and televisions. When a big state like the US imposes tariff the effects of this is shared among the consumers of products who are paying huge amounts and production firms in other countries who got low profits. Therefore, the tariff is found to be a very poor instrument of punishing china with unfair trading exercise. Most of the cost will be borne by; Consumers of America, US-based Firms either operating in China or using their intermediate goods, US Allies which supply goods to China and privately owns Chinese Companies. The same is applied to retaliatory tariffs of Chinese. (David Dollar, 2018)
Today Washington is more dependent on trade, globalization, and supply chain which it did in ¾ of century past. As per the brooking institute research and analysis, there is about “some 2.1 million jobs in the 40 industries that produce products now slated for Chinese retaliation.” If the situation of mutual impositions of tariffs by the two states will continue there is an estimate that about 134,000 Americans will be faced a shortage of job availability and the net income of the farmers in the USA will be fall to 6.7%. (L, 2018)
Impact on foreign exchange market;
Rising trade war has impacted the foreign exchange markets via several channels such as; shifting flows of trade and also expectations on monitory policies and growth. As per the report of David Powel, the most impact currency is the Canadian dollar and the Thai bhat according to the under and over-evaluation of the foreign exchange. (Sam, 2019)
As the country is the largest receiver of the FDI – Foreign Direct Investment is plummeted in this ware of trade. The foreign investment in China has fallen down in last year as a consequence to tariff trade war. As per the report, the percentage was decreased to 27.6. This not only impacts the FDI but also forcing the companies who are related to industrial supply to leave the country which further affect the country by USD 12 trillions of damages. (Wang, 2018)
Comtrade. (2018). United Nations Commodity Trade Statistics Database Statistics Division. Retrieved from http://comtrade.un.org
David Dollar, Z. W. (2018). Why a Trade War with China Would Hurt the US and Its Allies, Too.
L, H. (2018). How China Will Benefit from a Trade War with America. The National Interest.
Sam, B. H. (2019). A $600 Billion Bill: Counting the Global Cost of the U.S.-China Trade War. Bloomberg.
Wang, O. (2018). China’s foreign direct investment plunges 27.6 percent in November on trade war worries. SCMP. Retrieved from https://www.scmp.com/economy/china-economy/article/2177885/chinas-foreign-direct-investment-plunges-276-cent-november
Impact of US & China Trade war on Global Economy