U.S.-China Trade War: Who will Win?

China is the creation of the U.S. over the decades as United States’ addiction for cheaper goods continued to offer China a favourable market that Trump now wants to undo with a trade war.

The U.S.-China trade war has reached a deadly proportion. Tariffs may not move further, and there is as little possibility that they move back. Meaning that, China will not bow down and U.S. will not lessen or hike its tariffs from what they are now.

As things stand, U.S. tariff on Chinese imports is 145 per cent, while Chinese duty on U.S. imports is 125 per cent.

While United States’ middle class loved cheap goods from China and upped its lifestyle—and thereby made a habit of it; and would now be in a mess due to possible inflation in the U.S., the Chinese small industries fed on manufacturing cheap goods and importing them.

Thus, while inflation will greet the United States, small industries in China would be badly hit in the absence of a huge market like that of the United States that turned them fat over the years. China would look for alternative markets, and Chinese leaders have already been looking for markets in India, European Union and other countries.

U.S. President Trump’s 90-days tariff break for countries other than China, may be a game Trump is experienced at playing as a businessman. This gives the United States space for negotiation and though China has been asking European Union to stand together to face Trump’s tariff dictats, European Union is not going to take any hard shift from its traditional approach.

European Commissioner Maros Sefcovic is travelling to Washington on Sunday to hold talks with U.S. officials for a deal on tariff. China has been trying to mend its relations with India for trade, but India will not upset the United States. In fact, both the U.S. and China have been eying in a renewed way upon India for trade. While India enjoys trade surplus with the U.S., India bears a trade deficit with China. But as the U.S. and China export different things, both the arch trade rivals may still continue to do trade with India, and India can continue to offer trade partnership with both.

Though there did not seem any pre-planned strategy, U.S. President Trump went on adding tariffs on China in the hope that Chinese President Xi Jinping will come forward to negotiate. On the other hand, Xi too responded to Trump’s move with a huge tariff on the United States. For both the countries, there is no going back now. And the trade war is at stiff.

Who Wins, who Loses?

The premise in the trade war between the U.S. and China is simple! The United States is the consumer and China is the seller—if looked at in a crude way.

Chinese exports to the United States include electronic goods, computers, toys, batteries, electric vehicles, machinery, nuclear reactors, boilers, furniture, fabricated buildings, plastics, articles of iron and steel, optical, textiles articles, footwear, glass and glassware, edible fruits, nuts, cotton, silk, smart phones etc. Total volume of Chinese goods exported to the United States stood around US$501 billion in 2023. The U.S. bears a trade deficit of around $300 billion annually with China alone.

In fact, China is predominantly a manufacturing nation—and its small industries have gained huge. In the absence of foreign market, the small-scale industry of China, which has changed its huge population into a boon, will be negatively impacted. Unemployment may rise. Socio-economic situation may arise, which will directly affect China’s internal politics. This is why it is important for China to find alternative market. In the absence of alternative markets, Chinese industries will create more problems than good for the nation.

While in the U.S. prices may go up in the absence of cheap Chinese goods, elsewhere, prices of goods may go down due to the overflow of Chinese goods.

Is there a Possibility of Roll-back from both the sides?

There is already a fear in the U.S. of an economic slow-down due to its trade war with China. However, who takes the first step for negotiation—Trump or Xi? Trump has been waiting that Xi will take the first step as China’s stakes are higher, but Xi does not want to bow down.

Meanwhile, many nations are in a mood to make use of the 90-day brake of the Trump tariff and deal with the U.S. on tariff. That U.S.-China may break the ice, shed ego and negotiate to a degree, may not be ruled out.

However, complete roll-back by either side is not possible. In fact, Trump’s senior advisors are with him in the tariff game against China, though some of them may not openly disagree with Trump on the magnitude of the tariff.

What is the Psychology?

While Chinese population has been for years working to overtake the United States and become the largest economy of the world, the United States population has been enjoying their global superiority in a relaxed manner, and feasting on cheap goods of China.

More hardships for China now may not deter its population from manufacturing and selling in whichever market that they find. On the other hand, U.S. has to either manufacture locally or find suitable cheap seller in the absence of Chinese goods. Therefore, United States’ socio-economy is more at stakes in this trade war than that of China.

History suggests that it is the hungry rural fighters who always defeated the city-dwellers who were given to comforts. China with a hunger for becoming the largest economy of the world and the global super power, threatens to be unstoppable, unless the U.S. re-works on its popular psychology too, and readies it for this war. A Trade War of this magnitude between the two most powerful economies of the world is first time in history; and no less than a Real War.

In a war, the people and the army should stand by the commander. For Trump, this point appears weaker than it appears for Xi. The unfolding of events in the next few days will further set the rules of the game.