After two years of continuous confrontations on mutual international trade, the two largest economies of the world- the USA and China-are working to overcome their differences. The USA supplies high-quality products required for Chinese growth and Chine supplies the consumer goods, which are the backbone of US consumer markets. Hence both are dependent on each other for a healthy economy.

Why did the confrontation start?

In the last decade, China has become the factory of the world, manufacturing a whole set of goods demanded by the consumers worldwide. The USA is a consumer-oriented market; hence the consumption is very high. China being a manufacturing-driven economy, supplies many goods for American consumers while buying less from the American producers/manufacturers. This situation led to the creation of a trade imbalance in favor of China. In 2018 the trade deficit reached more than $400 billion, causing alarms for the Americans.

Further, there were issues related to Chinese practices of forced labor, manipulation of the Chinese currency, and Intellectual property theft.

What happened during the 2-year confrontation?

On 22 January 2018, the USA implemented tariffs on washing machines and solar cell imports, starting the US-China trade war. They also implemented tariffs on imported aluminum and steel. China retaliated by imposing tariffs on $3 billion of goods. This cycle of retaliation continued for two years, and by the end of 2019, the USA had imposed tariffs on $550 billion worth of goods, and China had imposed tariffs on $110 billion of American goods.

What happened in the new trade deal between the US and China?

According to the new trade deal between the USA and China, China has committed to buy an addition $200 billion worth of goods (2017 levels) from the USA which includes $52.4 billion of energy exports, $32 billion of agricultural commodities, $77.7 billion of manufactured goods and $37.9 billion of services. Furthermore, China has also agreed to take action against the malpractices related to Intellectual Property Rights and ensure fair and equitable market access. China also pledges to be more transparent in the currency markets.

What implications might it have on other countries?

Although China and the USA have resolved some of their issues related to international trade, the growing influence of the Chinese economy will continue in the future, creating a similar situation of trade imbalance with other countries. The current deal between the USA and China can also affect the exports of other countries to China in the short-run, does not seem to have any significant impact in the long-run.

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Author: Sachin Yadav


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