Since his election
campaigning days, Donald Trump has been very vocal about how he is not in favor
of the US and China trade relations. He made several statements like “China is neither an ally or a friend–they
want to beat us and own our country.” He maligned China more than any other country during his
campaign. Even then, he did not take any step against China during the first
year of his presidency, something that he pledged during his entire campaign
duration. He even visited China on the first anniversary of his election and
was welcomed with opened arms.
Now, just as he
completed one year as president, Donald Trump, on January 23rd, 2018
has imposed high tariff on a range of products – solar panels and washing
machines – imported from China. The main reason for taking this step is to
protect the American manufacturers against low-priced foreign imports. This is
the first step in Trump’s ‘America First’ approach and it proved that the administration would “always defend
American workers, farmers, ranchers and businessmen.”
The immediate impact
of this move was that Whirlpool’s shares rose by 5% and they plan to hire 200
more people immediately.
This move has also
received a lot of backlash, not just from China and South Korea, who are major
exporters and will suffer because of this tariff, but also environmentalists,
who believe that increased price of solar panels will negatively impact the
uptake of renewable energy in the US. China, along with other countries is
planning to go to WTO (World Trade Organization) and complain against this
extreme step. Samsung, a South Korea based washing machine manufacturer, called
the tariffs a tax on every
consumer who wants to buy a washing machine”. Meanwhile China, the world’s
biggest solar panel manufacturer, said the move would further damage the global
China has in the past
threatened the interests of US based corporates. The trade war that US has
started, will have economic consequences. A few things that China might do,
apart from going to the WTO, are halting the imports of soybean and maize from
the US and replacing Boeing orders with Airbus. Even the sales of iPhone and US
auto will suffer setback in China. Chinese government can also ask Chinese
tourists to not visit the US, and US could lose out a lot.
Both China and US will
be impacted by this trade war. The US government has estimated that just under
a million American jobs are supported by trade. The tariff will be a tax on
every product the consumer purchases. People will pay more and have fewer choices.
On the other hand, China is the biggest exporter of solar panels and it will
now have to dump the products in another country.
As China’s exports to US will reduce,
China will now have to dump their product in other countries like India. When the exports of solar panels increase,
their price in India will decrease. This increases competition for domestic
products and manufacturers because now Chinese goods will be available for a
cheaper price throughout the globe. Also, medium and small-scale enterprises
will be unable to compete on quality with the Chinese products. So, the price
war increases the pressure on MSEs.
Also, China has more
than 1.7 trillion$ in US bond and a total of 3.2 trillion$ worth of US
currency. They might retaliate by slowing down or even halting the purchase of
US treasuries. This will result in low liquidity in the US bond market. Also,
the US dollar will depreciate if China goes ahead with this. This will have a
huge impact on the global economy.
If the US dollar depreciates, oil
prices will rise. This will benefit UAE and the Gulf regions, as there will be
a rise in consumer confidence that will lead to job creation and the workers’
salaries will rise. Also, UAE can import solar panels from China on reduced
price. UAE has a lot of potential for exploiting solar energy. Getting cheap
solar panels will further boost their usage of renewable resources.