US-China Trade War: Where it is heading!

When big players play, the rest rather prefer to see that. It was all predicted that the Trump Administration will come up with newer ideas to add fuel to US-China Trade War. Trump did not spoil a day but announced straight 10% rise of tariff on Chinese products. It is not only a signal of trade war between the two global giants but a clear signal that the United States itself will be pivotal in undermining the rules-based international trading system, which is determined by the World Trade Organization (WTO), and ironical enough for which US had once pushed all concerned.

In a free market scenario, the essence of tariff was not earning of revenue or control of imports, rather it was a negotiating tool, and at the same time a negotiated tool to predict the policy of a government towards import of a certain product. The Trump administration, after announcing additional tariff on Chinese products, as well as on the threat to impose such tariffs on products from Mexico and Canada, is taking a path which was once abandoned and rejected and which had led the initiation of GATT and the WTO.

China. A late entrant to the WTO, may not make it an issue at the WTO, but will retaliate at its own pace. It has already declared such measures against some particular products like American coal, LNG, crude oil, etc. It has initiated a fresh row against Google as well. Maybe all-powerful Elon Mask may also receive a share of China’s anger if it includes Tesla’s cybertruck. China is the world largest importer of coal, but most of it comes from Indonesia and Russia. LNG was rather an item of importance which trade was on rise between US and China. But US is the largest exporter of LNG globally.

Other than China, it has a large market in Europe. China is beefing up tariff on US trucks, automobiles and agriculture machinery. The value of these does not constitute perhaps around $20. On the other hand, the Chinese exports to US accounts for as much as $450bn. Therefore, it is not difficult to say whose teeth are stronger in the initial round of trade war. Even if Google is affected, it may not cause any concern to it, because Google is already out of market in China.

In a globalized world, a sudden shock in the existing supply chain may automatically trigger ripple’s affect to everyone in the chain. Therefore, the possible trade war may not only remain within the US and China, but it will definitely affect others. India, the other global trader of similar stature, is seemingly happy with the US-China trade war. A section claimed that India was a big beneficiary during Trump’s previous administration when the administration had initiated hostility towards Chinese products. Therefore, India is eyeing to capture larger share in its exports of electrical machinery, automobile parts, mobile phones, textile and most importantly pharmaceuticals to US market.

China knows this. It has, therefore, increased export control on the raw materials like tungsten and other metal products which are crucial for manufacturing of electronic goods as well as solar panel. Indian Premier Modi is awaiting a visit to Washington DC, and many believe that bilateral trade will remain high on his agenda, but the complexity of international trade the competitive capacity of India to deliver vis-à-vis the intricacy of India’s relations with the US may not help it entirely. If Trump is hostile against China, he may become hostile against India for the same reason.

Many think that Bangladesh may also be a beneficiary from this trade war. Maybe, it is marginally true. Though Bangladesh may gain an upper hand due to additional tariff on Chinese textile, but as the manufacturing base of Bangladesh is too narrow, and the capacity is too low, the benefit will remain marginal.