Understanding the US China Trade War: Timelines, Statistics, Maps, and More

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China is number two and climbing fast. That’s why the US China trade war has America – and the whole world – shaking in its boots.

Economic anxiety is seeping into our daily lives. Small companies can’t run smoothly. Prices are going up. Stocks are shaking. Farm bankruptcies are on the rise.

The effects are everywhere. Around the world, no one can escape them.

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US/China Trade War: The Big Picture

Let’s start at the beginning. A trade war is the kind of conflict where, instead of shooting bullets, countries shoot tariffs at each other. It usually happens when one country has a big trade deficit with another country. In modern times, national economies are deeply connected — countries rely on each other and work to sustain each other through open, bilateral trade. When one country ends up benefiting more from a trade deal, there’s a big problem.

What is a trade deficit?

There’s a lot of talk of import quotas and trade deficits in this US China trade war summary. A trade deficit is what started the war. Essentially, America imports more products from China than China imports from America. That means a lot of our money is flowing to manufacturers and others outside our borders.

Trade deficits aren’t always bad. Sometimes an increase in foreign goods can increase competition and lower the price of domestic products for consumers. This can help curb inflation and increase the number of goods and services available to consumers. Trade deficits often resolve themselves, but the trade deficit with China has become severe enough to be of real concern for America, sufficient cause to start the China US trade war. To resolve a trade deficit, protectionist policies such as tariffs can be introduced.

What is protectionism?

Protectionism is when one country restricts trade with other nations to protect its own economy. The US China trade war is an example of protectionist policies. America is placing restrictions on international trade in an attempt to get consumers to spend less on Chinese products and more on American products. Here are some of the weapons a country can use in prosecuting a trade war: import quotas, tariffs, product standards, government subsidies.

Import quotas: A way for the government to limit the number of products that can be imported from other countries. Quotas prevent the domestic market from getting flooded with foreign products and they protect American manufacturers.

Product standards: We haven’t seen too much of this in the trade war with China. High regulatory standards can prevent the import of foreign products. Standards can be written fairly to protect consumers or unfairly to favor domestic producers over foreign competitors.

Government subsidies: Whether it’s a tax break or actual cash payments, government subsidies make it easier for domestic companies to be more competitive in the market.

For the most part, the US-China trade war has been conducted with tariffs.

What are tariffs?

Tariffs are simply taxes on imported goods that the government collects on the border. They are customarily used to protect a country’s production capacity. The reasoning is that, if tariffs are levied on foreign goods, prices will rise and consumers will opt to buy domestic goods instead.

How do tariffs affect the economy?

It depends. Sometimes they can help the economy get back on its feet by reducing trade deficits. In the case of the China US trade war, tariffs are slowing down the global economy. Fewer goods are being traded, and consumer spending power has decreased.

The short-term consequences aren’t terrible, but if this war keeps going, we’ll be looking at lowered GPD, consumer confidence, and production. Tariffs are raising the cost of parts and materials, which means private-sector output will be reduced. Higher consumer prices mean that the after-tax value of both labor and capital will be reduced. Since both workers and employers will earn less, they’ll spend less, work less, and invest less.

The US has also accused China of currency manipulation.

What is currency manipulation?

There has been a lot of talk of currency manipulation in the China vs US trade war.

Exchange rates are critical to international commerce. Since different countries use different currencies, there must be a way to exchange currencies at fair rates relative to each other. Values fluctuate, and exchange rates are constantly changing.

When a country sells more stuff than it buys, the value of its currency tends to go up — since more people are buying things from that country, there is a greater demand to buy the currency. This demand means that the market prices go up, and this makes for a strong currency with a higher value.

Now consider the US China trade war, where one country sells more than it buys and has a trade surplus. Since a lot of people are buying the currency to buy things from that country, the goods from that country start to cost more. This isn’t usually a problem. The country with the strong currency can buy more things from other countries, and things balance out.

Here’s where manipulation comes in — instead of buying goods, a country can also buy huge quantities of other currencies. It can keep the demand for its products high because the other currencies now have higher values. The country’s own products now cost less, and products from other countries are more expensive. In the case of China, devaluing the yuan against the dollar means China can keep its trade surplus up and America is hit with an even bigger deficit.

The US China Trade War’s Impact on the Global Economy

North America

The US is dead set on reducing its trade deficit by any means necessary. For now, the Trump administration is introducing protectionist policies in an attempt to get China to cooperate while simultaneously trying to disrupt the Asian superpower’s “Made in China 2025” initiative.

The US China trade war tariffs that the two countries have been flinging at each other have slowed down the global economy significantly, but there are no clear winners yet. Neither of the two countries seems willing to back down, and both President Trump and Chinese President Xi Jinping have promised to keep introducing tariffs and import quotas for as long as necessary.

What happens next depends largely on how long the trade war lasts. A protracted conflict would hurt most national economies around the world, but in order to resolve it, someone has to back down at some point or a mutually satisfying compromise must be reached.

The latest US China trade war negotiations didn’t resolve the issue. The next round of negotiations is set for October 2019. Right now, American companies are suffering because they can’t procure the equipment and parts they need at reasonable prices. Markets are volatile and business investment is slowing down all across the country. If the war doesn’t end soon, American businesses will have to find new trading partners to sustain themselves.

Economists are still having debates over the trade war. Some believe it will bring nothing but economic hardship, while others say it will pay off in the long run. It could be that the only way to put a stop to China’s unfair trade practices is to engage in an open war that will stunt the country’s progress.

Now let’s take a look at our polite neighbor to the north: Canada.

For the most part, Canada is likely to be fine. The US China trade war has been somewhat beneficial for Canada because its exports to the US have increased. Products like soybeans, computer chips, lobsters, and other goods are now being sold to China as the US/China relationship suffers. The Canadian economy is experiencing moderate growth and economic indicators are looking up.

Europe

Europe is likely to suffer from the effects of the US China trade war, particularly if China targets companies such as BMW and Mercedes Benz. Germany is currently having a particularly hard time because 47% of its economic output relies on healthy trade relationships. The strain caused by the trade war has been keeping German business confidence low for the past eight months. German companies that make luxury cars and complex industrial machinery usually dominate the market, but lately their grasp has been slipping because of a global trade slowdown. Exports and industrial production are falling, and job gains are slowing down. 

Despite sluggish economic growth in Europe, it’s possible that the China US trade war could open up new opportunities for certain sectors. European factory machinery, cars, chemicals, aircraft, and computer chips could potentially replace Chinese and American products in international markets. 

One danger for the European economy lies in the kind of trade deal the Trump administration makes with China. If the two countries make a deal aimed at reducing America’s trade deficit, it could come at the expense of European companies and the products they export. For now, both China and the US are attempting to woo Europe and establish stronger trade deals to minimize the impact of the war.  

Asia

US-China trade war consequences have been bad for Asian exports. China, Japan, South Korea, India, and Indonesia have all experienced a severe drop in international trade, while Singapore and Thailand have suffered to a slightly lesser extent. 

The slump needn’t last long, however. While China wrangles with the US, other Asian countries are likely to start using the conflict to their benefit. Trade redirection to countries such as Vietnam and Malaysia means these smaller economies could get a boost, especially if the trade war doesn’t end in the near future. 

Southeast Asian countries will have to invest in infrastructure and production capacity if they truly want to grab this opportunity. While some factories are already being relocated from China to other Asian countries, there hasn’t yet been a fundamental shift. Moreover, Trump’s ire is aimed at any country that has a trade surplus with America, which could affect their relationship with America in the future. 

The US China trade war got more heated when China devalued the yuan and the Trump administration interpreted the move as currency manipulation. This affected Asia as a whole: Nine countries were added to the watchlist for potential currency manipulation, which could end up making it tricky to be a part of any kind of US government procurement contracts in the future. Central banks such as Bank of Thailand and Bank of Indonesia are following the Fed’s move to cut interest rates, and this is affecting global demand for products. If this continues, it will be very difficult for Asian countries to gain much from the trade war, despite the new openings in the market. 

Latin America

Latin America is in a difficult position because it’s being made to choose between China and the US. Both countries are vying for its attention, which gives the region some leverage in the China US trade war. China has managed to overtake the US as Brazil’s biggest trading partner, but America is still pushing for trade talks as the Chinese attempt to gain a stronger foothold in Latin America. 

While this sounds like something that might benefit Latin American countries, in reality it’s likely to harm them as well. Regardless of how the trade war progresses, the region is set to lose one of its biggest trading partners. Emerging economies are being hit the hardest because investors, already nervous about the trade war, are quickly switching to low-risk investments and slowing down growth. 

Middle East

The US China trade war’s effects will be felt far and wide, and Middle Eastern countries are not exempt. In general, any kind of big trade war between two economic powers can slow down global growth. The United Arab Emirates is likely to suffer a reduction in exports because protectionist policies usually cause a slump in product demand. 

Oil exports will also affected. China and the US need oil and they will not import it from each other, so oil exports are increasing in the Middle East. However, a prolonged trade war often involves more protectionist policies that simply slow down growth everywhere. It’s likely that even oil exports will suffer. 

Africa

Each US China trade war update shows that the conflict is having a harrowing effect on the African economy. South Africa has a very small, open economy, and as in Germany, trade trouble can easily affect economic output on a deep level. Waning demand has already caused a severe trade deficit  and South Africa’s GDP is dropping slowly. South Africa has no leverage in this war, and it will end up being collateral damage as the big players dish out tariffs and push each other in an attempt to gain advantage. 

Rising interest rates in America are also leading to a weaker South African rand against the dollar. This will affect the price of imported goods and finished manufactured goods (for example, cars and machinery). It will also affect the price of crude oil, which in turn affects petrol prices. Stocks are falling, investments are slowing, and for emerging economies in this region, there will be little support or growth stimulus until the trade war resolves itself. 

Australia

According to US China trade war updates, Australia is unlikely to take the brunt of this conflict. Its economy is steady and it’s likely to remain a trading partner to both China and America. If there is a global increase in tariffs it’s bound to slow down economic activity and reduce purchasing power, but for the most part, Australia could get out of this largely unscathed. 

Who benefits the most from the US China trade war?

No one. Countries like Canada and Australia might manage to reap some benefits because they will replace the US and China as the main suppliers of certain goods, but for most countries, the risks and consequences will be greater than the gains. It’s still too early to tell Whether America or China will fare worse, because both countries are economically strong and have a long way to go before exhausting their resources to fight this war. 

Certain African and Asian countries will be hit the hardest, and Europe will suffer its own share of problems, particularly Germany. Latin America’s economy is likely to contract, and the Middle East is likely to retain some measure of balance.

When did the trade war start?

It’s difficult to pinpoint the exact moment the trade war started because America kept denying that it was any kind of war at all. 

The day the first round of tariffs hit can be used as a starting point — January 22, 2018. On that day, President Trump announced his tariffs on solar panels and washing machines. All countries were subject to tariffs at that point, but it was the first step in the battle. At that point, 8% of all solar panels imported into America came from China. 

How did the US China trade war start?

The China US trade war was started by America as a response to what President Trump views as China’s unfair trade practices. America accused China of intentionally growing the trade deficit in America, of stealing intellectual property, and of forced transfer of American technology into China. The US published a report titled “Findings of the Investigation into China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation Under Section 301 of the Trade Act of 1974.” The report was published in March 2018, and you can find it here. 

What is China’s main export to the US?

Broadcasting equipment is China’s main export to the US. Broadcasting equipment includes TV, radio, Bluetooth, microwave, antenna, digital, FM, and AM equipment. 

What is our trade deficit with China?

Trade war statistics show that America’s deficit with China was about $420 billion in 2018. America imported $540 billion worth of products from China, but China imported only $120 billion of American products. This is what created the trade deficit. America’s trade deficit with China was just $91 billion in 2001. 

When did the US start trading with China?

China and America signed a bilateral trade deal in 1979. They re-established diplomatic relations and immediately built up to $4 billion in trade. China is America’s largest trading partner and one of America’s biggest suppliers of advanced technology. 

How much does China owe the US?

China’s national debt is $5.2 trillion, but all of it is owed within China. Global debt is a tricky subject, but it’s somewhat related to the China US trade war — since China owes all of its debt, none of it belongs to America, meaning we can’t use it as leverage of any sort. Because China owns a great deal of US debt, it has an additional weapon in the trade war. 

What is the current US tariff rate?

The US currently has a 2% average tariff rate on industrial goods. About 50% of all goods entering America are not subject to tariffs at all. As for Trump tariffs on China, they range from 10% to 25% on most Chinese goods. The administration plans to introduce even more.  

Who is China’s biggest trade partner?

One of the reasons that the trade war between China and the US is so complicated is because they are each other’s biggest trading partners. Besides America, China also trades a lot with Hong Kong, Japan, South Korea, and Vietnam. 

Map sources

• Deloitte
• How Much
• Observatory of Economic Complexity
• Organisation for Economic Co-operation and Development
• The Balance
• Library of Congress
• Wikipedia

Sources

• Asian Development Bank
• China Briefing
• CNN
• commodity.com
• Deloitte
• Forbes
• Global News
• How Much
• Investopedia
• Library of Congress 
• National Bureau of Statistics of China
• Nikkei Asian Review
• Observatory of Economic Complexity
• Office of the United States Trade Representative
• Organisation for Economic Co-operation and Development
• Reuters
• South China Morning Post
• The Balance
• Wikipedia
• World Bank