Eyeing the Impact of the US-China Trade War

• Published Month : Friday, 17 Jan 2020 07:00 pm

It has now been almost a year and half since July 2018 when the first barrage of tariffs got instigated in the China-US trade war. The United States has levied tariffs over almost USD 300bn of Chinese imports including weighted average tariff from about 3.1 percent previously in July 2018 to more than 20 percent as of now. China’s weighted average tariff over the US imports was high already at almost 8 percent that has grown to more than 20 percent now.

Here is a brief research about the impact of China-US bilateral trade agreement:

Effects over the US exports to China: Export of goods from the US to China has weakened by almost 22 percent. However, it remained of very limited significance to the economy of United States accounting nearly 0.7 percent of GDP. Hence, the USD 30bn fall in the US exports to China would accounts for almost 0.15 percent of GDP.

Impacts over the exports from China to the US: Export of the Chinese goods to the US were approx. 7 times more important to China comparative to GDP (4 percent of GDP). Thus the drop of USD 54bn in Chinese exports to the US would possibly represents around 0.4 percent of Chinese GDP.

Overall effect over bilateral trade between China-US: Regardless of the ongoing trade war, entire bilateral trade of goods has fallen by merely 12.7 percent in terms of dollar per year basis. In upcoming months this drop might probably get more prominent and reach to almost 20 percent. However, this fall in terms of trade doesn’t take any account of the growth that may perhaps have then taken pace. The imbalance in bilateral trade is now been well below its level of July 2018 that was recorded at around USD 369bn. This signifies a contraction of almost 6 percent (USD 24bn) from the level of July 2018 and nearly 12 percent (USD 49bn) from its highest level.

Impact over manufacturing is more noticeable: Goods trade between China-US is almost equal to around 5 percent of the manufacturing value-added across the globe. The trade war may perhaps have well knocked almost 0.3 percent or so off manufacturing output across the globe after considering trade diversion. The manufacturing from China and the resulting loss of FDI may perhaps have a more devastating and longer-term impact over the growth of China.

Impact over the global economy: The trade activity of US-China accounts for less than 1 percent of global GDP. Hence, any decline in this relationship has very limited range when it comes to global economy.

Impact over the global trade: Bilateral trade has been always been rising and has now seen lessening. A simple conclusion of the movement growth from 2007-2017 (that was invalidly high), suggests that trade in the year 2019 would have possibly been nearly USD 700bn instead of the expected range of USD 560bn-USD 570bn. However, lost bilateral trade doesn’t interpret of lost trade as diversion in trade might probably have made up for almost two-thirds of short fall.