America – One of the strongest and richest countries in the world.
China – One of the most populated and most developed countries in the world.
Before we dig our hands into this pile of mud, lets go over a few definitions of words that are going to be coming up over and over in this article.
Trade War – When two countries attack each others imported products with taxes (tariffs).
Tariff – A tax on products that are made abroad.
Protectionism – When using restrictions such as tariffs to boost your country’s industry against foreign competition.
Free Trade – The opposite of Protectionism, I.E. the fewest tariffs possible, creating freedom to the people to buy cheaper, or perhaps better quality products from anywhere in the world.
Trade Deficit – The amount by which the cost of a country’s imports exceeds the value of its exports to one country.
Alright, now that we’ve gotten all that out the way, let’s begin.
Mid 2018 the internet and newspapers we’re slammed with head titles reading the following:
“US President Donald Trump has shaken the foundations of global trade”
“US vs. China trade war: Who has more to lose?”
“Trade War with China: Costs, Opportunities, Challenges, and Benefits”
“More Americans see China’s rising economic power as ‘critical threat’ to the US”
Sounds like havoc just hit the markets, but what is all this about? A trade war? Who? China? Aren’t China the biggest exporters? Who would pick a fight with them?
A couple of months before on March 2nd ‘18 president, Trump updated his Twitter status saying the following:
Now although there are multiple reasons as to why winning trade wars most definitely aren’t easy, Trump’s looking at this from a whole different perspective.
In his eyes, he sees the tariffs being paid to China, Europe, Canada etc as a loss to America. He sees all this import from foreign countries as yet another reason why his country can’t produce enough jobs. America isn’t manufacturing enough product and therefore have fewer factories, meaning, fewer jobs, and more people on the streets. He sees every penny being paid to these foreign countries as a loss to the US and wants the country to begin to manufacture and produce their own products, saving them from these income taxes while opening up thousands of new jobs at the same time.
His next move from here was what caused the infamous trade war, essentially affecting the world’s economy and reaching the headlines on every newspaper and website.
The president placed tariffs on billions of dollars worth of goods from all over the world, in particular, China, of course, eliminating free trade and causing an incredible amount of havoc around the world. The president accused China of being a country of unfair trade practices way before he had even become president and was now taking the chance to fix what he thought needed fixing. Trump then went ahead making a loud point on the campaign trial in regards to cutting the country’s trade deficits with China, and let me tell you now, America had a huge trade deficit with China, standing at approximately 375.24 billion dollars in 2017.
Let’s explain a little further into these trade deficits.
Back in 2017, the US had exported approximately 243 billion dollars worth of services in areas such as tourism, banking and travel. Keep in mind that these services account for a massive 90% of America’s economy, whereas China, on the other hand, doesn’t export even half as many services as it does products and manufactured goods.
So what is Trump’s obsession with these trade deficits?
His Fixation on the matter is incomprehensible to many, leaving critics to assume this is all in the name of protectionism.
Shortly after his Twitter post, the president had raised a 25% tariff on steel import, and a 10% tariff on aluminium.
Trump’s administration came out saying that the purpose of this specific tariff is because the US has been relying too much on other countries for its metals, and that if a war broke out, America would not be able to make enough weapons or vehicles with its own industry, and therefore want the country to begin with focusing on that.
Critics then came out informing that the US receive most of their metal from Canada and the EU- both who are loyal and stout allies, so what was the real intentions of the president when applying these tariffs?
Now although Trump’s intentions were good, it seems that he didn’t plan too far ahead.
With the president putting such high tariffs on metal, causing Americans no choice but to purchase their supply within the country, creating higher demand, meaning a requirement for more of the product, meaning higher prices….
With the price of metal rising, American companies in the need of the raw material, such as car manufacturers and aeroplanes will begin to see a rise in their expenditure, causing the price of the finished product to rise too.
We’re talking about a rise in the price of cars, plane tickets, mobile phones, even that favourite beer of yours which you prefer drinking from a can as opposed to a glass bottle and sitting with on a relaxed night with your mates won’t be costing you the same anymore.