Since Trump’s election campaign, the trade deficit has been a major topic on many media channels. Now the shots have been fired – President Trump has composed tariffs on Chinese steel and aluminum import, as well as further plans to tax other Chinese products. China has responded with tariffs of their own, and now the two superpowers are approaching a war, a trade war.
Firstly, a trade war is defined as “an economic conflict in which countries impose import restrictions on each other in order to harm each other’s trade.” Trump’s new legislations meet this description. The President has additionally pointed out Chinas intellectual property theft. This is all happening because Mr. Trump wants to address the U.S. trade deficit, which shows that the country imports hundreds of billions of dollars more than what the country manages to export.
History has proven that, simply, no one wins a trade war. For example, when Geroge W. Bush in 2002 increased steel tariffs, the US GDP declined $30 million, only to lose 200 000 jobs. Even the World Trade Organisation ruled that the Bush tariffs were illegal.
Politically, Trumps stands for protectionism and has displayed signs of stepping back from trade deals such as North American Free Trade Agreement. Trumps has already declined the Trance-Pacific Partnership.
Beyond the Trump supporters, the new legislation is not welcomed by everyone, especially not by business leaders who support existing trade deals with China. It is important to note that trade wars could backfire. Take steel, there are a lot of more people employed in industries who buy steel to make products, not necessarily the steel-making process itself. Business may be forced to pay higher prices for steel and the end consumer would be affected. This would imply that inflation could boost more than what the Federal Reserve has planned, who might feel the need to raise rates. And this holds big economic impacts and uncertainty.
In conclusion, there are of course positives and negatives with a trade war, but for the globalization sake, it is bad. I am personally worried about the stock market and how the next couple of days will play out. But more importantly, who will win the trade war – if there is a winner.