Impact of US trade war with China

As of December 2017, China owned $1.2 trillion in Treasurys. It is being reported that the U.S. debt to China is lower than the record-high of $1.3 trillion held in November 2013.
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President Donald Trump is set to launch confrontation with China and Beijing officials have warned Washington stating that it will retaliate with appropriate response if US plans to initiate a trade war by imposing protectionist tariffs on its steel and aluminum imports, sanctions against China over infringement of intellectual property and barriers for American businesses.

China’s foreign minister Wang Yi said it would protect its interest in a trade war.

But China is also concerned over trade sanctions that are likely to be imposed under an investigation known as a Section 301 into China’s intellectual property practices.

Wang also downplayed concern over Australia’s involvement in a new regional grouping with the US, India and Japan, known as the “Quad”, and said China was determined to stay on the path it has chosen.Its rise was unstoppable, he said.

“The truth is, the more China develops, the more contribution China will be making to the world. China is on a long march to modernisation. It has no need or intention to displace America,” Wang said.

President Donald Trump is expected to set tariffs of 25 percent on imported steel and 10 percent on imported aluminum this week. If given the green light, they are likely to come into effect within two months.

On Twitter, Trump stated that trade wars were “good and easy to win.” Officials in China and European nations, whose industries would be hurt by the US move, are warning this may not be the case.

There are reports that Trump has told President Xi Jinping that the U.S. trade deficit with China isn’t sustainable. Earlier, the Trump administration has slapped tariffs on solar panel and washing machine imports in January. But the core point of this standoff is that US  relationship with China is one of mutual dependence that can’t be disrupted without doing damage to both sides. China seems to be in a better position to handle disruption as inflation is down and Chinese Yuan has also strengthened.

It is not clear how Beijing will respond but the trade tariffs move by Trump may prompt Beijing to target American exports to China like soybeans, aircraft and cars to levy counter-tariffs.The country imported $12.4 billion of American soybeans last year to feed its pigs so as to keep the price in check for pork as it is China’s staple protein in households.

Moreover, responding to Trump, European Commission President Donald Tusk said “The truth is trade wars are bad and easy to lose. [The] EU’s goal is to keep world trade alive and if necessary to protect European [sic] by proportionate responses.”

The sudden announcement of the tariff plan last week caused stock markets to fall sharply as investors feared a trade war.The United States is China’s largest trading partner and China regained its position as the world’s largest exporter in 2017 with exporting $2.2 trillion of its production.

Trump may also tighten rules on Chinese purchases of US firms as there are barriers put up by Chinese counterparts on American businesses for reciprocal access in the country. As of December 2017, China owned $1.2 trillion in Treasurys. It is being reported that the U.S. debt to China is lower than the record-high of $1.3 trillion held in November 2013.

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By: Arti Bali

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