17 May

What to Know about the US-China Trade War

WRITTEN BY Mayur Sontakke, CFA, FRM

A war without bloodshed

The US-China trade war is making headlines and moving markets. With a trade deal between two of the biggest economies not yet in sight, the markets are anxious, swinging from gains on positive-sounding tweets to losses in the absence of them.

What to Know about the US-China Trade War

What’s the trade war all about?

The key point of contention in the US-China trade dispute is the large trade deficit the United States runs against China and the former’s belief that China (ASHR) has been playing it unfairly for decades.

The difference is staggering. In 2018, the US exported $180 billion worth of goods and services to China and imported $559 billion in return. Thus, the United States ran a trade deficit of $379 billion against China alone in 2018. China accounted for a massive 42.5% of America’s total trade deficit of $891 billion in the year.

President Donald Trump believes that China (FXI) has taken advantage of world trade agreements when trading with the United States. President Trump’s accusation isn’t entirely untrue. China (MCHI) has suppressed the Chinese yuan and rolled out stimulus packages to support exporters.

President Trump started a trade war with China last year by imposing tariffs on solar panel imports first and then extending them to other goods. Trump wants to use the tariffs to push companies to buy and produce in the United States.

The current situation

As it stands, the United States has already put tariffs on $250 billion worth of Chinese goods and is gearing up to include $300 billion worth of goods in the list. This week, China retaliated by announcing that it would impose tariffs on $60 billion worth of US goods entering China. The trade talks between these countries remain inconclusive. President Trump is expected to meet Chinese President Xi Jinping at the G20 summit in Japan in June.

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