12 Jun

All You Need 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’s the trade war all about?

The key point of contention in the US-China trade dispute is the large trade surplus China runs against the US and the latter’s belief that China has been manipulating trade unfairly for decades.

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

President Donald Trump believes that China has been manipulating world trade agreements, and his accusation isn’t entirely untrue. China has suppressed its currency over the years to make exports cheap. The country has also rolled out stimulus packages to support its exporters.

The trade war with China started last year when President Trump first imposed tariffs on solar panel imports and then extended them to other goods. Trump wants to use the tariffs to promote his buy American, hire American policy.

The current situation

Right now, the US has put tariffs on $250 billion worth of Chinese imports. The Trump administration has also threatened China with the possibility of tariffs on the remaining $300 billion worth of Chinese imports. China has put tariffs on $60 billion worth of US exports.

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