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How did the trade dispute between the world’s two biggest economies (US and China) start? What happens if their standoff escalates into a wider economic conflict? How can India and the rest of the world be impacted? (Relevant for GS Prelims & Mains Paper II; IOBR)

The United States has raised tariffs to 25% on $200 billion worth of Chinese goods. This move has sparked another round of tariff wars between the world’s two largest economies. Higher tarrifs are now applicable to all Chinese imports in the US.

Origin of the US-China dispute
he tarrif war between US and China began since Trump slapped heavy tariffs on imported steel and aluminium items from China in March last year.  China responded by imposing tit-for-tat tariffs on billions of dollars worth of American imports.

The dispute escalated after Washington demanded that China reduce its $375 billion trade deficit with the US, and introduce “verifiable measures” for protection of Intellectual Property Rights, technology transfer, and more access to American goods in Chinese markets.

 Impact of trade war on global economy
1. IMF noted that the US-China trade tension was one factor that contributed to lower growth rate of global economy.

2. Higher import tarrifs will increase the price of imports and thus consumption will be hit in both the countries.

3. The trade tensions could result in an increasingly fragmented global trading framework.

Negotiations are going on between the two nations to reduce the tarrifs. While there is still hope that the two countries will ultimately sort out their issues, the risk of a complete breakdown in trade talks has increased.

How India is impacted by US-China trade war
1. There could be a short-term impact on the stock markets. The benchmark Sensex at the Bombay Stock Exchange has been falling in line withzglobal markets in response to trade war between the US and China.

2. In the longer run, a slowdown in the US economy is not good for emerging markets such as India.

3. However, India may stand to benefit from the trade tensions between the world’s top two economies.

Will trade dispute go to WTO?
While it is not clear yet whether the matter would go to the World Trade Organisation (WTO), data show that the US generally wins trade disputes, particularly against China, before the global trade arbitrator. According to the Peterson Institute for International Economies, in the last 16 years, the US has challenged Chinese practices 23 times in the WTO, with a win-loss record of 19-0 — with four cases pending.

In the most recent decision, the WTO panel found that China’s agricultural subsidies were inconsistent with WTO rules, and upheld US claims.

US-China Trade and Investment Facts
–US GOODS & SERVICES trade with China totalled an estimated $737.1 billion in 2018. Exports: $179.3 billion; imports: $557.9 billion; deficit: $378.6 billion

–CHINA IS CURRENTLY the US’s largest goods trading partner with $659.8 billion in total (two-way) goods trade in 2018. Exports: $120.3 billion; imports: $539.5 billion; US goods trade deficit: $419.2 billion

 

–TRADE IN SERVICES with China (exports and imports) totalled an estimated $77.3 billion in 2018. Exports: $58.9 billion; imports: $18.4 billion; US services trade surplus: $40.5 billion

–911,000 JOBS (estimated) were supported by US exports of goods and services to China in 2015 (latest data available), according to the US Department of Commerce; 601,000 supported by goods exports; 309,000 by services exports

–US FDI IN CHINA (stock) was $107.6 billion in 2017, a 10.6% increase from 2016. US direct investment in China is led by manufacturing, wholesale trade, finance and insurance

–CHINA FDI IN THE US (stock) was $39.5 billion in 2017, down 2.3% from 2016. China’s direct investment in the US is led by manufacturing, real estate, depository institutions

(Source:https://indianexpress.com/article/explained/simply-put-the-us-china-trade-war-trump-tariffs-5724261/)



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