Trade War between the United State and the Republic of China amidst Covid-19

In 2018, former President of the United States, Donald Trump started a trade war with China. The tension between the US and China started earlier the year in World Trade Organization due to Solar Cell case. China started investing with respect to cannabis exports to the United States of America. As a result, on July 6^th, 2018, President Trump officially declared trade war with China by imposing 25% tariffs on steel and aluminum imports from China.

The war not caused economic misbalanced on the both sides but also led diversion of trade flow on other nations. Even growing economy like India is highly impacted. The war led weakening of Indian currency as the investors became critical to Indian market. Hence, the imports are growing more expensive which makes it hard for India to sustain competitiveness by reducing cost.  

PRESENT SITUATION

The latest report published by BAIN & Co. on September 20^th, 2021 suggest that the US and China knocks 96% of bilateral tech investment i.e., fall of 75% of total Foreign Direct Investment in past five years. A research conducted by Anne Hoecker, partner with Bain & co, suggests that in over past years Chinese direct investment in the United States has drastically fell as Washington put ban on various Chinese companies for geopolitical uncertainties in businesses. US has blacklisted 168 Chinese companies between 2018 to April 2020. Technology decoupling is a problem for economies other than the United States and China, The supply chain disruptions brought on by COVID-19 and the unprecedented semiconductor shortage as contributing factors.

TIMELINE   

Direct Investment between United States and China plunges in billions of dollars. This can be easily understood through timeline as below:-

• In 2016, China’s investments in the United States were almost 48 billions of dollars and United States’ investments in China were almost 14 billions of dollars.
• In 2017, Chinese direct investment dropped by more than 35% estimated 29 billion of dollars. Whereas, US investment in China remained the same as 2016.
• In 2018, Chinese foreign direct investment to the US fell to only 4.8 billions of dollars and it is continuing as of now.
• In 2019, U.S. tariffs on USD200 billion in Chinese goods will increase from 10% to 25% after trade talks break down. China has announced that it will impose tariffs of 5% and 10% on USD75 billion in goods.
• In 2020, to keep trade flowing, China has decided to exempt 16 US products from additional tariffs for another year. The United States has declared that it will begin preventing the import of any cotton goods produced by the Xinjiang Production and Construction Corps. The two sides discussed the COVID-19 updates and best practise initiatives they were putting in place to support their respective economies. The biggest order since October 2019 was made by China in early May, when it bought 40,200 tonnes of pork from the US. This occurs at a time when US meat production has decreased by more than 30% as a result of slaughterhouse closures caused by COVID-19.

IMPACT OF THE WAR AND THE EPISODE OF COVID-19 

  Donald Trump proposed for a manufacturing renaissance during the 2016 election. As the recession deepened and the COVID-19 pandemic broke out, the auto industry and the global supply chain upon which it relies came under intense scrutiny. The Foreign Direct Investment is mostly affected in areas like technology, real estate and healthcare sectors. Hence, USA has been badly affected as huge number of foreign investment has been decreased drastically. With the venture of trade war the world witnessed an uncertainty in the global economy. From 2018, Protectionist policies and inward looking sentiment has been seen across the globe and the outbreak of novel corona virus extended even to the greater extent.

The COVID-19 pandemic’s rapid spread from China to Europe, the United States, and elsewhere added complexity to already difficult bilateral trade negotiations. The Trump administration went to great lengths to advance the goals of the fossil fuel industry even as the economic recession and COVID-19 pandemic swept the United States. As a result of the retaliatory trade wars between the world’s two largest economies, symmetric information sharing about global infectious diseases shifted into asymmetric information sharing, leaving no time for countries to prepare for the emergence of the current global COVID-19 pandemic shock. Chinese losses from the trade war are greater in both absolute and relative terms compared to American losses. Some estimates put the cost of COVID-19 to China’s GDP in 2020 at 5% of 2019 levels, or USD0.5 trillion. If this were to happen, it could cost the United States economy 8.1% of its GDP in 2019, or about USD1.73 trillion.

The United States has put a step forward to become self-reliant by boycotting Chinese supply and blacklisting Chinese companies and initiated regional supply chains as well as formed business relations with various countries like Taiwan, South Korea, Japan and so on. And also, the American tech giant like Apple, Google, Amazon and Microsoft asked all suppliers to build capacity outside of china due to the geopolitical uncertainty. Initially, it was assumed that china and Chinese supply would be disrupted globally. Even though it did hit the ground but various experts believe that in the long run china has been benefited specially in terms of technology. Earlier the investment they were making in the United States, now the country invests in domestic technology which led the country to build semiconductor supply chain.

CONCLUSION

On July, 2022, in a decision that is expected to be met with scepticism in Washington, the World Trade Organization gives China permission to impose compensatory tariffs against the United States worth USD645 million. Apart from the two nations, the war has also disrupted supply chain globally. Both nations had to resort to information distortion in order to get ready for the global COVID-19 pandemic, which was caused by the lack of collaboration, coordination, and symmetric information sharing as a result of trade wars. By employing theoretical economics, we demonstrate that the global economy has been severely impacted by the recent convergence of retaliatory trade wars and the COVID-19 pandemic. Several major economies have started in their domestic technology and independent supply chain. Growing economy like India has also established supply chain with Japan and Australia. In April, 2021, India, Japan and Australia launched the supply chain Resilience Initiative to build resilient supply chains in the indo-pacific region. As a result, every nation has been focusing of their own technology and supply chain.