The two most powerful countries, the United States and China, with the biggest economies, are in a state of the trade war. Both have been threatening gargantuan tariffs against each other, which is not good at all for international trade, especially for export-based countries like New Zealand.
New Zealand is a well-developed Country that’s economy largely depends on their exports. From China to Australia, the Country sold their products to the populous nations for higher sales and revenues. While new age entrepreneurs are looking for web portals such as Business2Sell where they can find their choice of businesses and franchise for sale in New Zealand, leading economists are worried about the economic downfall that is expected to hit in the coming years.
Last week on Thursday, Donald Trump, President of the US, made an announcement where he imposed $ 100 billion in new tariffs on the products imported from China. On the other hand, China quickly responded to the US attacks and imposed 25 percent tariffs on certain US products. This is something serious as both the countries have been in the trade war for over a year – which could cause some serious damage to the global economy.
The United States Dominance over Chinese Products: A Game of Tariffs Threats
President Trump, who has been working hard to bring manufacturing and jobs back to the nation, encouraged the Department of Commerce to investigate how the nation’s security is threatened due to the imports of steel from China and other countries
In August 2017, Trump conducted another biggest investigation through a government agency where they came to know that intellectual property theft by Chinese costs the United States between $ 225 billion and $ 600 billion/ per year. This is devastating!
This is one of the key reasons why Donald Trump took a major decision of imposing huge tariffs on Chinese imported products.
An announcement of higher tariffs on Solar Panels & Washing Machines by the US officials
The US took first trade action against China in January 2018, when they announced 30 percent tariff on solar panels and 20% on washing machines imported from China. Though this was just a threatening call, it affected the trade-dependent countries including New Zealand and South Korea.
Tariffs on Chinese Steel and Aluminum
The Commerce Department of the United States proposed further tariffs in February on Steel for 24% and aluminium for 7.7%. While this made US steelmakers happy, much of Corporate America warned that this could turn this trade war into an economic loss.
However, Trump followed through the Commerce Department on the tariffs and decided to exceed the tax duties on imported steel by 5% and aluminium by 2.3%.
Being the world’s largest steel exporter, China called that tariff attack on imported steel would affect the international trade and they will take serious actions against the US.
Chinese Government hits back with a bang
While the US is constantly dominating the imported products of China, the Beijing officials retaliated by imposing tariffs on the US products worth around $3 billion. They imposed 15% tariff on 120 imported products, including fruits, wine, nuts, steel pipes and a 25 % duty on pork and aluminium come from the US.
Later, Chinese government threatened further by imposing taxes on branded American products such as Harley Davidson motorbikes, Bourbon Whiskey, and Levi’s jeans. In response to this action, Trump is now threatening European car producers to impose taxes on imports.
In all of this retaliatory moves and trade war, there would be a decline in New Zealand economy, which is a complete trade-dependent nation. Trump’s tariff threats are not only affecting Chinese economy but also disturbing New Zealand’s economy. However, there could be a situation when more products will be impacted due to an escalation.
US continues to threat China: Targeted another $ 50 billion Chinese Products
Recently, Trump announced a set of tariffs in response to China’s retaliation by imposing 25 percent tax on 1,300 products, including machinery, medical and aerospace importing from China. The proposal was made by the US Trade Representative.
The step has been taken to protest the alleged theft of intellectual property by Beijing government. This bold move by the U.S has increased the trade tensions between the two countries, which is indirectly affecting the global trade.
According to a popular economist, “If you’re hitting $50 billion in trade, you’re inevitably going to hurt somebody, and somebody is going to complain,” This shows the impact of high tariffs on global imports, which is creating problems for trade-driven countries like New Zealand.
When China Responded to the US Trade Threats!
The Chinese government announces further retaliatory tariffs on $50 billion US products at 25 percent. China imposed a tariff on 106 products including automobiles, soybeans, aircraft and chemicals, importing from the US.
The announcement made by the Chinese government has created an agitation in the global markets – which is not at all good for their nation as well as the international economy.
However, with each passing day, this trade war is getting worst. There is another announcement by Trump who wishes to introduce new taxes on Chinese products worth of $100 billion. Now they will target the products that are harming the nation’s economic growth.
On this statement, China warns that it would retaliate to additional tariffs on American imported products.
How will trade conflict affect New Zealand’s Economy?
A trade war between China and the United States would drastically affect the New Zealand economy. It is because the Country is more dependent on their export trade. New Zealand’s large portion of revenues depends on exports to the populated nation like China.
In 2008, the free trade agreement between New Zealand and China was signed to promote the import and export business within their reach. And till now the exports has doubled to $11.5 billion – which good for New Zealand’s economic growth.
This means a trade dispute would have a significant impact on New Zealand, especially their meat industry.
Here, the problem is not about the quality of products exported to China, but the nature of products being exported is moving. The meat and Fonterra processors have been shifting from commodity traders and incorporating more value to their goods. In 2015, New Zealand sold around $1.55b worth of meat industry products to China, and now they would export chilled meat as well.
In short, New Zealand shares a healthy relationship with China, and if trade war could happen, it will directly impact the country’s economy. According to the World Trade Organisation, the Trump’s tariff threatening practice could trigger not just the trade ware but also led to a global recession.
The United States vs. China: Who will Win This Trade War?
Economically, China has more to lose in this full-blown trade war.
Since Chinese economy is completely dependent on exports and around 20 percent of its exports go to the United States, there would be a bad impact on China.
While China exported worth of $506 billion products and services to the United States last year, the US sold around $130 billion to China.
Undoubtedly, the U.S wins this economic battle. But politically, there is a positive scope for China. There is a strong belief that President Trump would not be able to sustain the impact of this conflict in the long run.
On the other hand, Chinese President Xi Jinping announced that the country has over $3 trillion surplus cash. This means China can use that surplus as damage control tool. They have reserved the surplus to run their economy. The Chinese cash reserves are more than the US has - which makes them stronger even in adverse situations.
What will be the outcome?
So, far, no tariffs have been imposed officially. This can be considered as a threat call that could please domestic producers. President of the United States wants to stop China’s control over their national economic sector.
Neither US has finalised the date for imposing a tax on 1,300 imported products, Nor China has fixed a date for imposing tariffs on the 106 US products. We are hoping, both the countries would take right decision not only for their economy as well as global trade.