US, China should call a truce and renegotiate trade

The first round of salvos has been fired between two of the world’s biggest economies, and there seems no letting up on either side, which is worrying countries and multinationals worldwide. After imposing tariffs on washing machines, solar panels, steel and aluminium imports, the US government has slapped duties on over 800 product categories from China, which are worth $34 billion in imports. Beijing has been quick to retaliate, triggering reciprocal tax on goods worth the same amount imported from the US. However, what’s more unsettling here is that the Donald Trump administration in the US remains unfazed. Trump has reiterated his plans to continue to squeeze China in the months ahead, and impose tariffs on goods worth $200 billion, if Beijing retaliates. This blunt measure for trade and tit-for-tat responses threatens to engulf more nations, and disrupt global supply chains.

No one wins in a trade war, we know that. And the Trump administration would do well to take stock of the economy at home to realise the impact of the recent moves. Prices of washers, solar panels, and aluminium cans, for instance, are up and have started to pinch common Americans. Trump says, this pain is necessary to force China to change its behaviour. But such an approach is unlikely to bring drastic gains. Yes, unemployment numbers in the US are low, and growth forecast is good. The stock markets are up, too. But that in large part is due to the momentum gained after the tax reforms and deregulation. An escalating trade war could jeopardise the gains made and affect growth. US tariffs on Chinese-made auto parts and medical equipment could impact costs of mobility and healthcare. Recent moves could force US-based companies to move their production base, and result in a loss of employment for Americans. Companies are already rethinking their plans, and shying from investing further. The Trump and Xi administrations should call a truce and renegotiate. A new trade understanding should emerge. For decades, China has prospered because of the open trade policies of the West. It is time it embraces the value system that has helped it immensely.