The U.S.A. vs. China: In a Trade War, Who Wins?

Everybody seems to be talking about a trade war and who is going to pack the toughest punch: Is President Trump going to succeed, and how is China going to retaliate? (Image:  Kris Krug via  flickr  CC BY-SA 2.0)
Everybody seems to be talking about a trade war and who is going to pack the toughest punch: Is President Trump going to succeed, and how is China going to retaliate? (Image: Kris Krug via flickr CC BY-SA 2.0)

Everybody seems to be talking about a trade war and who is going to pack the toughest punch: Is President Trump going to succeed, and how is China going to retaliate? While the U.S. administration is still working on the specifics of his import tariffs, President Trump has certainly declared that he is out to get China. China, on the other hand, has sent out conflicting opinions on the matter: Beijing has called the U.S. decision reckless, and has vowed to open up China’s economy and no longer force international companies to share their technology locally. Amid the contradictory statements, China has also threatened to fight back firmly

All in all, it’s total chaos; however, it’s one with sure consequences, both short-term and long-term. Who is going to lose? Both.

What will China lose?

Chinese economy largely depends on its exports and about 20 percent is imported by the U.S. In 2016, 68 percent of China’s overall trade surplus was because of the U.S. market, a number that increased to 88 percent in 2017. Simply put, if the U.S. imposes the import tariffs, China will lose its market in the U.S. Economically, that’s a major blow to China. Additionally, Chinese imports of U.S. products are low and any retaliatory tariffs would surely affect the U.S., but certainly not to the same extent.

China also risks losing the business of U.S. technology companies based in China, especially since the U.S. administration is urging companies to invest domestically and create more U.S. jobs. For example, if Apple decides to exit China or even reduce its production, China will lose thousands of jobs and billions of yuan in investments. The same is applicable if Apple simply decides to move to another country with lower labor costs.

For example, if Apple decides to exit China or even reduce its production, China will lose thousands of jobs and millions of dollars in investments. (Image: Raimond Spekking via flickr CC BY-SA 4.0)

For example, if Apple decides to exit China or even reduce its production, China will lose thousands of jobs and millions of dollars in investments. (Image: Raimond Spekking
via flickr CC BY-SA 4.0)

What will America lose?

China has already retaliated by threatening to impose tariffs on U.S. industries and products. For example, Boeing is heavily invested in China, which represents about 11 percent of its total revenue annually. If China shifts some of its orders to Airbus, that’s a loss of billions of dollars for Boeing.

Furthermore, many retailers import goods from China or get their products manufactured in China because of low-cost labor. The prices of these products would rise and the U.S. would have to find a prompt solution to compensate for the price rise of a massive list of products.

Beijing may also attack U.S. agricultural products exported to China, which, in 2016, were worth $US21 billion. Politically, Trump is already facing criticism for his proposal from executives of Boeing and even soybean farmers. If China, the world’s largest consumer of soybeans, imposes tariffs on the U.S. crop, soybean producers risk losing a huge chunk of their revenue. It is also quite apparent that China’s strategic attack on the states of Ohio, Iowa, Missouri, and Indiana could hit Trump’s significant voter base. With President Xi practically declaring himself president for life, politically, Trump risks losing much more.

If China, world’s largest consumer of soybeans, imposes tariffs on the U.S. crop; soybean producers risk losing a huge chunk of their revenue. (Image: pexels / CC0 1.0)

If China, the world’s largest consumer of soybeans, imposes tariffs on the U.S. crop, soybean producers risk losing a huge chunk of their revenue. (Image: pexels / CC0 1.0)

Cross-border impact

Hong Kong’s Finance Secretary has expressed serious concern over the possible trade war, fearing that about one in five Hong Kong jobs could be affected. He has also expressed that a trade war would have no winners. The international community, at large, will ultimately get hit in the crossfire.

Hong Kong’s Finance Secretary has expressed serious concern over the possible trade war fearing that about one in five Hong Kong jobs could be affected. (Image: Mstyslav Chernov via flickr CC BY-SA 3.0)

Hong Kong’s Finance Secretary has expressed serious concern over the possible trade war, fearing that about one in five Hong Kong jobs could be affected. (Image: Mstyslav Chernov
via flickr CC BY-SA 3.0)

It’s a difficult time for Hong Kong, as it is also facing Singapore in a race to become the global financial center. Hong Kong needs to work on its financial services sector and improve the overall quality and knowledge of its population in terms of financial management. Singapore, on the other hand, is steadily displacing Hong Kong through its strategic investments in the overall financial services and planning literacy of its population. To compete with Singapore, Hong Kong also needs to push through its politics and bring about policy initiatives to improve its financial services.

Follow us on Twitter or subscribe to our weekly email

The Indian Elephant in the Room