Since hiselection campaigning days, Donald Trump has been very vocal about how he is notin favor of the US and China trade relations. He made several statements like “Chinais neither an ally or a friend–they want to beat us and own our country.” Hemaligned China more than any other country during his campaign. Even then, hedid not take any step against China during the first year of his presidency,something that he pledged during his entire campaign duration. He even visitedChina on the first anniversary of his election and was welcomed with openedarms.
Now, just ashe completed one year as president, Donald Trump, on January 23rd,2018 has 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 imports. This is thefirst step in Trump’s ‘America First’ approach and it proved that the administrationwould “always defend American workers, farmers, ranchers andbusinessmen.”Theimmediate impact of this move was that Whirlpool’s shares rose by 5% and theyare planning to hire 200 more people immediately.
This movehas also received a lot of backlash, not just from China and South Korea, whoare major exporters and will suffer because of this tariff, but alsoenvironmentalists, who believe that increased price of solar panels willnegatively impact the uptake of renewable energy, which has already fallen inrecent years, in the US. China, along with other countries is planning to go toWTO (World Trade Organization) and complain against this extreme step. Samsung,a South Korea based washing machine manufacturer, called the tariffs a taxon every consumer who wants to buy a washing machine”. Meanwhile China,the world’s biggest solar panel manufacturer, said the move would furtherdamage the global trade environment.Anothersegment that is unhappy with this decision is a large section of the US solarindustry that comprises of companies that install solar panels. Thesebusinesses will have to deal with higher costs and that will negatively impactthe market.
Also, the local solar panel manufacturers in the US need to maketechnological advancements for their production to be more efficient,otherwise, these companies won’t get a huge boost from Trump’s decision. China has inthe past threatened the interests of US based corporates. The trade war that UShas 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 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 Chinaand US will be impacted by this trade war.
The US government has estimated thatjust under a million American jobs are supported by trade. The tariff will be atax on every product the consumer purchases. People will pay more and havefewer choices. On the other hand, China is the biggest exporter of solar panels.Chinese economy is threatened by Trumps’ move, as it will lead to reduction inexports thereby reducing the inflow of foreign currency.
Also, China will nowhave to dump the surplus products in other countries. The Chinese governmenthas already depreciated CYN from USD = 6.40 Yuan to USD=6.90 Yuan. As China’s exports to US will reduce, Chinawill now have to dump their product in other countries like India. When theexports of solar panels increase, their price in India will decrease.
Thisincreases competition for domestic products and manufacturers because nowChinese goods will be available for a cheaper price throughout the globe. Also,medium and small-scale enterprises will be unable to compete on quality withthe Chinese products. So, the price war increases the pressure on MSEs. Thiswill result in many of these companies shutting down their businesses, andeventually lead to loss of jobs and income. Though, there are reports thatIndia is also planning to impose a 70% duty on import of solar panels. Also, China has more than1.
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 UStreasuries. This will result in low liquidity in the US bond market. Also, theUS dollar will depreciate if China goes ahead with this. The interest rate willincrease. All this will have a huge impact on the global economy.
If the US dollardepreciates, oil prices will rise. This will largely benefit UAE and the Gulfregions, as they are the largest exporters of crude oil. With increased prices,there will be a rise in consumer confidence that will lead to job creation andthe workers’ salaries will rise. Also, UAE can import solar panels from Chinaon reduced price. UAE, because of its geographical location, has a lot ofpotential for exploiting solar energy. Dubai has already launched the world’s’largest concentrated solar power project’ and is also working towards ‘DubaiClean Energy Strategy 2050’. Other areas in UAE can benefit by importing cheapsolar panels from China and further boosting their usage of renewableresources. Increased oil prices alsomean more expenditure for China, as it imports a huge quantity – approx.
9million barrels – of oil every day. This will lead to higher cost of living. As our world is a VUCA world(volatile, uncertain, complex and ambiguous), we can say that any change or anynew policy in any part of the world affects almost the entire global economy insome way or the other. We see how a political decision impacts the economicalatmosphere of the country. The given situation is a perfect example todemonstrate how VUCA and PEST are caused and influenced because of one-another.Finally, we can say that thedecision taken by president Trump is going to impact the entire world economyin some way or the other. If China retaliates in the ways we have mentionedabove, US dollar will go down which will result in oil prices going up.
The USeconomy will take a hit and the local businesses will end up paying more formaybe lower quality products. Though Trump could have imposed much highertariffs and made the situation worse, China sees that the imposed tariffs is inthe middle. There are still talks taking place and we will have to wait and seeif the Trump government imposes tariffs on even more goods or settles this controversialstep he has taken with talks.