Since his electioncampaigning days, Donald Trump has been very vocal about how he is not in favorof the US and China trade relations.
He made several statements like “China is neither an ally or a friend–theywant to beat us and own our country.” He maligned China more than any other country during hiscampaign. Even then, he did not take any step against China during the firstyear of his presidency, something that he pledged during his entire campaignduration. He even visited China on the first anniversary of his election andwas welcomed with opened arms.Now, just as hecompleted one year as president, Donald Trump, on January 23rd, 2018has imposed high tariff on a range of products – solar panels and washingmachines – imported from China. The main reason for taking this step is toprotect the American manufacturers against low-priced foreign imports. This isthe first step in Trump’s ‘America First’ approach and it proved that the administration would “always defendAmerican workers, farmers, ranchers and businessmen.”The immediate impactof this move was that Whirlpool’s shares rose by 5% and they plan to hire 200more people immediately.
This move has alsoreceived a lot of backlash, not just from China and South Korea, who are majorexporters and will suffer because of this tariff, but also environmentalists,who believe that increased price of solar panels will negatively impact theuptake of renewable energy in the US. China, along with other countries isplanning to go to WTO (World Trade Organization) and complain against thisextreme step. Samsung, a South Korea based washing machine manufacturer, calledthe tariffs a tax on everyconsumer who wants to buy a washing machine”. Meanwhile China, the world’sbiggest solar panel manufacturer, said the move would further damage the globaltrade environment.
China has in the pastthreatened the interests of US based corporates. The trade war that US hasstarted, 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 fromthe US and replacing Boeing orders with Airbus. Even the sales of iPhone and USauto will suffer setback in China. Chinese government can also ask Chinesetourists to not visit the US, and US could lose out a lot.Both China and US willbe impacted by this trade war. The US government has estimated that just undera million American jobs are supported by trade.
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The tariff will be a tax onevery 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 willnow 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 domesticproducts and manufacturers because now Chinese goods will be available for acheaper price throughout the globe. Also, medium and small-scale enterpriseswill be unable to compete on quality with the Chinese products. So, the pricewar increases the pressure on MSEs.
Also, China has morethan 1.7 trillion$ in US bond and a total of 3.2 trillion$ worth of UScurrency. They might retaliate by slowing down or even halting the purchase ofUS 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 ahuge impact on the global economy.If the US dollar depreciates, oilprices will rise. This will benefit UAE and the Gulf regions, as there will bea 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 reducedprice. UAE has a lot of potential for exploiting solar energy. Getting cheapsolar panels will further boost their usage of renewable resources.
