Question

Trump’s imposition of $260 billion tariff in the Month of May 2019 (taxes on imports to the US Market) on Chinese exports to the US has caused a global tension in financial markets and related business activities. In retaliation of Trump’s tariff, China also imposed almost similar amount of tariff on US exports to China about $200 billon. In response to this trade war between the US and China, the US stock price indices of the Wall Street plummeted in May and June 2019. Th stock market in Shanghai in China also crashed at the same time. The data on new job for the US economy in May showed a very slow rate of job creation at the same time. Given this scenario from the US-China trade war and given your knowledge on macro model of AD an AS, do you think the the retaliation of China in response to Trump’s Tariff would have a negative impact on the US economy in near future? Give your reason in your opinion as to why or why not the case.

Answer 1

Today the United States and China are the two leading economies of the world.The dispute has seen the US and China impose tariffs on hundreds of billions of dollars worth of one another's goods.

US President Donald Trump has long accused China of unfair trading practices and intellectual property theft.
In China, there is a perception that America is trying to curb its rise as a global economic power.Negotiations are ongoing but have proven difficult. In January, the two sides signed a preliminary deal but some of the thorniest issues remain unresolved.Uncertainties around the trade war have hurt businesses and weighed on the global economy.

The shifting of production made to sidestep the higher tariffs, some companies are choosing to move out of China.A recent survey by the American Chambers of Commerce in China and Shanghai found 40% of respondents are considering shifting or have already relocated their Chinese manufacturing facilities - mostly to South East Asia.Even for firms that are already located outside China, the ripple effect is beginning to be felt by some.

The trade deficit is the difference between how much the US imports from other countries and how much it exports. Reducing the gap is a key part of Mr Trump's trade policies.

The US-China trade war has been a great source of uncertainty for financial markets over the past year. That uncertainty has weighed on investor confidence around the world, and has contributed to losses.

In response to this trade war between United States and China, the US stock price indices of the Wall Street plummeted in May and June 2019.The stock market in Shanghai in China also crashed at the same time.The retaliation of China in response to Trump's tariffs would have a negative impact on the US economy in the near future.The economic conflict caused impact on global financial markets.Globally Foreign Direct Investment (FDI) slowed.In long term , the trade war slow economic growth.

Summary:The world's two largest economies have been locked in a bitter trade battle and it have negative impact on the both economies in near future. The trade war between US-China made economic slowdown globally.