Trade War Tariffs

The ongoing trade war between the United States and China has shocked markets on multiple occasions, stranded workers across many industries, and left the citizens on the ground in both countries scratching their heads after reading one too many bizarre tweets, but who is really winning in this tit-for-tat tariffs tantrum?

When President Donald Trump first began the trade war with China in 2018, he defended the move as a requirement to open China’s markets and to protect America’s rights to its intellectual property. Selling these actions as great for America, Trump promised that “trade wars are good and easy to win” which China, not the United States, would carry the weight of the tariffs woes.

With the United States-China trade war steadily ramping up, however, there is a lot of talk about whether tariffs save American jobs – as President Donald Trump declares – or destroys them.

So is the trade war making Americans better off or even worse? Political economists have actually been exploring this question since the start of Trump’s trade war last year. The answer makes a big difference to the financial welfare of American workers. And, with the 2020 elections soon approaching, it may assist determine whether Trump can remain in the Oval Office for another four years.

The good news – employment rates are stable. Since Trump announced tariffs on more than 1,000 Chinese goods and products on April 3rd, 2018, about 2.6 million new jobs have been added to the U.S. economy

Looking deeper into that, however, it’s slightly more complicated. Wages have stagnated, especially in the manufacturing sector, a sector that has taken the brunt of the tariff war impact.

Additionally, consumers are facing another challenge when they head to the supermarket – rising costs. From Walmart to local neighborhood stores, consumers are slowly starting to see prices climb on everything from smartphones and computers to toys and clothing.

The biggest losers, however, might be the very factories Trump has pledged to save. In fact, intermediate goods and equipment – such as electric motor, parts, and plastics – heading to American factories – comprise the largest share of U.S. imports from China.

Trade war could damage the global economy

The Organisation for Economic Co-operation and Development issued a downbeat assessment of the international economy as the standoff between the world’s two most significant economies continues to simmer, stating the world’s economic momentum had weakened and growth was set to stay at a subpar rate as the tariff tit-for-tat rages on. It said both the U.S. and China stood to lose big from the imposition of more significant tariffs.

The OECD cautioned that a prolonged trade war could knock as much as 0.7% of global GDP (GDP) by 2021-22. This prediction comes as the Paris-based think tank cut its outlook for global development to 3.2% in 2019 and 3.4% in 2020.

S&P Global Rankings has also expressed concern, stating that more significant tariffs are workable for both China and the United States in the short term, however, the longer-term effect on development “may be underestimated”.

S&P Global Ratings credit analysts David Tesher and Terry Chan explained, “The impact on business confidence has been quite significant as reflected in the recent reaction in equity markets,” adding “This in turn could dampen investment appetite.”

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