Now that we’ve looked into some of the trends in international business in our last post, perhaps the most pressing issue this year has been the US-China trade dispute. But before we go into this, it’s important to know some of the key terms you hear or read in the various media reports.
Need to know glossary:
- Tariff: a tax or duty to be paid on a particular class of imports or exports
- Trade deficit: an economic measure of international trade in which a country’s imports exceeds its exports
- Protectionism: this refers to government actions and policies that restrict or restrain international trade, often with the intent of protecting local businesses and jobs from foreign competition
- Free trade: a policy to eliminate discrimination against imports and exports. Buyers and sellers from different economies may voluntarily trade without a government applying tariffs, quotas, subsidies, or prohibitions on goods and services – the opposite of protectionism
- Trading blocs: a group of countries within a geographical region that protects themselves from imports from non-members. Examples include the North American Free Trade Agreement (NAFTA), the Association of Southeast Asian Nations (ASEAN) and Asia-Pacific Economic Corporation (APEC)
- World Trade Organisation (WTO): the only global international organisation dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments
The China-US trade war and its implications for Europe
How did it begin?
The US has been investigating China’s controversial trade policies for several months, some of which include forcing foreign businesses to sign over incredibly valuable technology to China in exchange for access to their market.
When this investigation concluded, American President Donald Trump decided to retaliate by introducing tariffs of $34 billion on Chinese goods on 6th of July 2018. Any items included in this tariff will receive a massive 25% tax at the border when they are imported into the States.
On July 10th, on orders of the President, the U.S. Trade Representative (USTR) Office then published a list of $200 billion in Chinese products to be subject to a newly proposed 10% tariff.
Why is this important?
These products will become much more expensive for Americans to buy, making them more likely to purchase a cheaper alternative, causing Chinese businesses to lose money. China have been quoted as saying that Trump has started “the largest trade war in economic history to date” and responded in kind by imposing 25% tariffs on $34 billion worth of US goods.
So, what does this mean for Europe?
Europe is also in a trade dispute with the US, after they put tariffs on steel and aluminium from the European Union. The 28-country bloc responded with import taxes on around $3.25 billion of US goods. The US Government is also considering putting tariffs on cars, which would escalate the situation even more.
If China gives in to the US, it could be bad news for Europe. “Trade tensions stoked by US President Donald Trump are clouding the economic outlook in Europe,” wrote analysts at Berenberg bank in London.
A journalist from the Associated Press puts it this way: “Many European companies would suffer because they both produce and sell goods in the US and China, the world’s biggest economies. For example, tariffs that China is expected to impose on Friday on US-made autos would hit German carmakers Daimler and BMW since they both make vehicles in the United States and export them to China.”
This is obviously an incredibly complex issue and is also ongoing – we cannot be sure what will happen. The one thing that is certain is that whatever the outcome of the trade war, its effects will be felt throughout the world’s economies.
If you are interested in studying International Business at Ulster University, take a look at the course page here.