Question

The U.S has explained the range of goods imported from china which will be subject to a tariff. China, on its part, has vowed to retaliate. Given your understanding of international trade:

a) How do you expect both countries to be impacted by the foregoing?

b) What are some of the current and anticipated global effects of this conflict between the two largest economies of the international system.

Answer 1

a. The international trade order will be harmed, and if Washington imposes additional tariffs on Chinese products, both the United States and China will suffer. It's going to harm both China and the US. For worldwide manufacturing, it's not healthy. Only global governance can address trade tensions, and the WTO is one of the main pillars of this global governance and can provide a peaceful alternative to trade conflicts. The double whammy of the US-China trade war and the threat of a contentious extradition bill that resulted in weeks of mass protests in Hong Kong struck demand for the ultra-luxury homes in the city

External uncertainties mainly influenced sentiment. And the suggested extradition bill, although retracted, may also have pushed some people with elevated net worth to at least rethink their asset allocation approach in Asia.

Continuing disturbances over the bill had exacerbated existing uncertainties over the trade war between the world’s two largest economies.

b. President Trump's decision to raise tariffs from 10% to 25% on China's $200 billion worth of imports, and his risk of doing the same with the other $300 billion worth of China's unpunished US imports, mark a fresh and harmful stage in the deterioration of global trade ties since his election in 2016. China has just announced revenge on US imports worth $60 billion, a comparatively gentle reaction. It should be observed from the beginning that China-US negotiations could still lead to a win - win result. Reformers in China understand that their state-owned enterprises are inefficient, subsidies are expensive, capital is misallocated, and the nation's rising intellectual property endowment needs to be protected. China has retaliated, but has also been quite restricted in its reaction to date, and the US measures could still be reversed. The scenario is also fluid because tariffs on intermediate products (capital goods and components) imported from China have so far been implemented almost solely by the US.

One can suppose that sooner or later, through greater rates, the American customer will bear much of the tariff price, but also that tariff income will return to American citizens in some form. Therefore, the adverse overall welfare impact of tariffs occurs because they displace more effective producers at the margins by less effective manufacturers who may be domestic or who may belong to third parties