Examining the U.S.-China Trade War: How Do Trade Wars Impact the Economy?

FT Contributor
Chess figures on a chessboard with both the American and Chinese flag superimposed over them, symbolizing a trade war between the two countries.
Reading Time: 4 minutes

A trade war occurs when two nations impose tariffs and quotas on one another’s imported products and materials. Trade wars often occur when one country levies tariffs on imported goods in order to protect domestic industry, and another country retaliates by imposing their own tariffs. While trade wars don’t involve any military violence, they can often be a sign of escalating tensions between two or more countries.

Tariffs and trade wars have been increasingly in the news recently, as President Trump slowly backs down from imposing sweeping tariffs on Chinese imported goods. The U.S.-China trade war had far-reaching economic implications as two of the largest world economies butted heads. This article will provide more information about trade wars and how they impact the consumer, including the currently de-escalating trade war between the United States and China.

US-China Trade War Timeline

The trade war between the United States and China began in early 2018 and resulted in additional retaliatory tariffs on both sides.

  • March 1, 2018 — President Trump places tariffs on steel and aluminum imports.
  • March 22, 2018 — After months of threats, President Trump imposes a 25% tariff on Chinese goods, and China imposes tariffs in retaliation.
  • April 3 through 4, 2018 — Both China and the United States issue a list of goods that are subject to tariffs.
  • May 21, 2018 — Both countries meet and attempt to outline a trade deal that will nullify the existing tariffs.
  • May 29, 2018 — President Trump reneges on the proposed trade deal and insists that the tariffs move forward.
  • June 18, 2018 — Trump threatens additional tariffs on Chinese goods.
  • July 24, 2018 — The Trump administration bails out farmers hurt by China’s retaliatory tariffs.
  • August 23, 2018 — Both countries impose additional, escalating tariffs on imported goods.
  • December 1, 2018 — President Trump and Chinese Xi Jinping meet at the G20 summit in Argentina, and agree to a temporary trade truce.
  • April 1, 2019 — Protests break out in Hong Kong, increasing tensions between China and the United States.
  • May 10, 2019 — After the trade truce falls through, Trump imposes additional tariffs on Chinese imports.
  • May 13, 2019 — China responds by imposing increasing tariffs in turn.
  • May 15, 2019 — Trump bans American companies from using telecommunications gear from foreign adversaries and adds Chinese telecommunications company Huawei to a trade blacklist.
  • June 17, 2019 — Business representatives testify against continued tariff escalation before the U.S. Trade Representative, arguing that they increase costs for American businesses and consumers.
  • June 29, 2019 — Trump and Xi Jinping reach a trade war ceasefire and resume negotiations.
  • August 1, 2019 — Trump announces that he will move forward on increasing tariffs, again reneging on previous trade negotiations.
  • August 23, 2019 — China issues retaliatory tariffs on U.S. goods.
  • November 27, 2019 — President Trump signs legislation in support of the ongoing protests in Hong Kong, further escalating tensions between the United States and China.
  • December 13, 2019 — China and the United States reach another deal, and agree to postpone further tariff increases.
  • January 15, 2020 — The two countries officially sign the new trade deal, easing tensions between them.

Who Is Winning the Trade War?

The trade war between China and the United States has been controversial since its beginning. Some argue that President Trump’s tariffs are an aggressive approach that will protect American business and punish Chinese imports. However, others insist that the escalating tariffs have primarily had a negative effect on American small businesses and consumers, who have faced the brunt of the price hikes on imported goods.

Analysts also argue that the trade war has decreased China’s dependence on American goods, and has escalated their path towards complete independence in the technology sector. While the United States has raked in increased profits due to the tariffs on imported goods, they’ve also had to bail out American businesses affected by the trade war, primarily in the agricultural sector. Overall, however, both countries have suffered economic losses in the short term, and there’s no clear winner on either side.

Who Benefits From Trade Wars?

Economists argue that trade wars are, on the whole, bad for the economies of both countries. Trade wars and tariffs decrease international trade, reduce profits, and impose additional “tariff taxes” on small businesses and consumers. Despite this, however, protectionism continues to rise in developed countries, signaling a political impulse toward isolation and reduced international trade.

One group that trade wars do sometimes benefit is low-skilled workers employed in an industry protected by tariffs. These workers benefit due to increased demand, and have more job opportunities in that industry.

Protectionism Is on the Rise

Protectionism is a political and economic philosophy that promotes domestic producers and punishes imports from other countries, often through the use of tariffs or quotas. Protectionism allows governments to shield new or struggling industries from foreign competition.

Protectionism may have some positive benefits, including encouraging domestic industry, increasing jobs and boosting the gross domestic product (GDP). However, the negative consequences of protectionism often outweigh the benefits, as increased tariffs and quotas can instigate escalating trade wars, and consumers almost always end up footing the bill.

How Trade Wars Impact Consumers and What to Do About It

Tariffs from trade wars can result in higher unemployment rates, heightened inequality, and reduced access to a variety of consumer goods. They can even result in a lower standard of living across the board. In the face of increased protectionism, consumers must take action to avoid financial hardship.

Keep Track of Your Financial Health

Trade wars often bring escalating prices, a turbulent financial sector, and an uncertain job market. During these precarious times, it’s important to keep track of your financial health to make sure that you’re in the best position possible to weather any potential financial downturns. It’s a good idea to secure a stable job, and to map out a budget for each month in order to keep track of your spending and saving.

Shop Smart

Tariffs often only apply to certain imported goods. To avoid the negative consequences of a trade war, try to avoid items that have suffered major increases in cost. During the trade war between the United States and China, for example, electronics became more expensive — savvy consumers may want to delay purchases or shop alternative products to stretch their dollars further.

Create an Emergency Fund

An emergency fund can help you to weather tough economic times. Experts recommend that you try to save up at least six months of living expenses, in case you lose your job or are forced to cope with an economic downturn. Emergency funds can also provide you with peace of mind and allow you the flexibility to make the personal and professional decisions that are right for you and your family.

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