US-China standoff

With new US tariffs on Chinese goods in place, the US-China trade war has gone up another notch. Another $16 billion worth of goods from China must now clear US Customs by paying tariffs. China has promised to continue to hit back. As it stands, the US and China have both slapped each other with a 25 percent tariff on $50 billion worth of one another’s goods. China, for its part, has remained on the back foot, refusing to be the first aggressor and continuing to call out US bullying. The real killer is likely to be the third round of tariffs on another $200 billion worth of goods, which could kick in next month. For now, China has promised to mitigate the effects for foreign business operating in the country, since it wants to protect its carefully cultivated status of the go-to country to outsource manufacturing. A number of American companies have complained to the US Trade Representatives Office that the tariffs were harming US business – but it is unlikely that President Trump will care. Economic populism is not grounded in benefiting all and Trump is happy to act like a strong man and pretend that the measures would benefit the US economy.

These measures by the US also confirm the failure of the World Trade Organization, given the agenda of free trade. The same agenda has been imposed on a number of developing countries, which has led to their local industries collapsing as well as unmanageable import bills. But there have been no sanctions forthcoming from the WTO for the US, which has chosen to impose tariffs on Mexico, Canada and the European Union. China has announced that it will be taking the matter to the WTO once again; the WTO has yet to rule on its first complaint in July this year.

Talks between US and Chinese officials have ended without a breakthrough. The longer this goes on, the more fears will be that the effects will spill on to the global economy. The IMF warns that this could shave 0.5 percent off global economic growth in two years. Morgan Stanley estimates show that it could knock around one percent off the global GDP. The American car industry, which already needed a bailout in 2010, is among those industries that have been affected. The big question is whether the free-market era can survive the rise of China as a major economic force. The current US policies are dealing a death knell to the idea. While the global economy will suffer, if it results in greater national freedom to decide trade policies, it might not be the worst outcome.