As China and US trade blows the global economy is biggest loser

Pushing back at what he sees as China’s unfair trading relationship with the United States is one of US president Donald Trump’s top priorities. The US imposed tariffs on billions of dollars worth of Chinese goods in 2018, pulling the world’s two economic superpowers into an increasing feud.

Since then, the countries have exchanged tit-for-tat increases, which escalated sharply in the past month, after Mr Trump announced tariffs would be introduced on a further $300bn (£245bn) of Chinese goods, effectively meaning all its exports to the US have an extra charge attached.

Why are the United States and China feuding?

“The only power that we have with China,” Mr Trump said as he campaigned to be the Republican candidate for president in 2016, “is massive trade.”

Mr Trump’s criticism of China stems from a belief that the Asian manufacturing giant has been ripping off US technology, and that the country has been manipulating its currency to lower the cost of its goods, undercutting US firms.

One of the president’s key stated goals is to reduce the US’S trade deficit with China: the difference between its exports and imports with the country. Data varies strongly month by month, so a fall might not be immediately obvious, but the trade war seems to have had a limited impact on the annual gap: China, for its part, has taken a more reactive stance.

How do you fight a trade war?

There are two main ways of waging a trade war: by putting tariffs on goods, or by leveraging your currency. Tariffs have been the main tool in Donald Trump’s arsenal. Tariffs are a form of duty paid when goods are imported. In effect, they raise the price of goods, making it harder for the seller (in this case, Chinese firms) to compete.

China has responded in kind, but the countries’ trade deficit means there are much fewer US imports it can levy than the other way around. Currencies also offer a means of waging economic war, however. Countries that are heavily reliant on exporting (such as China and Germany) benefit from their currency being weak,

because it makes their goods cheaper for foreign buyers.

How do tariffs currently stand?

The US is levying a tax of up to 25pc on $250bn of Chinese goods, including some equipment, clothes, food, minerals and more. It plans to raise the biggest tariffs to 30pc from Oct 1.

The US administration is also planning a tariff of up to 15pc on a further near-$300bn of goods hitting a myriad of products ranging from dummies to muffin ovens which will be introduced in two stages: one on Sept 1 and the second on Dec 15.

China levied a tax of 5 to 25pc on $110bn of US goods, including medical equipment and some chemicals. Car imports are currently being levied at 15pc. Forthcoming: China has promised extra duties on $75bn of goods, which include a return to 25pc tariffs on automobiles, and a 5pc tariff on auto parts.

What impact is the trade war having?

The costs of tariffs are typically shouldered by the importer, meaning that the companies most directly paying the price are those in the US. This is a point Mr Trump appears to misunderstand: repeatedly insisting China pays the rates, despite even his own aides contradicting him.

Some sectors have already been heavily impacted, with agricultural sectors like the US soybean market slumping after Chinese demand dried up.

In China, the biggest impact is on capital spending, as investors inside and outside the country grow more cautious. Exports and factory production have both also dropped, with the country’s economy growing at its lowest pace in 27 year during the second quarter of this year. Chinese consumers, though appear to have continued spending.

So what happens next?

Right now, there’s no clear end in sight. The countries are set to resume talks next month, but an exact date has not yet been announced.

“China is running into the limits of how much it can inflict pain on the US without also hurting itself,” say analysts at Capital Economics, while in the US Mr Trump must find a way to manage public opinion if negative effects continue to be felt.

As it stands, tariffs will begin to tick up at the start of September – and what happens after that is anyone’s guess.