Question

Written Assignment (9%)

In your opinion, discuss the likely implication and consequences of the ongoing US-China trade war. What is the likely spill-over effect of the war on other Asian countries, particularly Malaysia?

You are required to discuss:
What is the meaning of the trade war?
What brought about the ongoing US-China trade war?
What does trade war imply to both countries?
What are the consequences of such war?
Are there likely to be a spill-over effect on other Asian countries, particularly Malaysia?

The essay must be less than 1500 words with times new roman (font) and double-spacing. Make sure you write your references with APA format.

Answer 1

US-China Trade war

The trade war means that countries try to damage each other's trade by using imposition of high tariff or quota on their imports. The trade war always reduces international trade between the countries. As we know that the trade war generally starts when the nation tries to protect its industries and try to create more jobs in the economy. The higher tariff will give the domestic industries a competitive advantage against foreign counterparts. That means the price of domestically produced goods will decline as compared to foreign goods. As a result, the local firms can sell more products and their industry will grow and it creates more jobs in the economy. But it only benefitted in the short run, in the long it harms the international trade and relationship between the countries. It decreases the economic growth of the economy who are all involved in the trade war. Also, it raises inflation in the domestic economy because of the price of imported commodity increases drastically.

The US-China trade war started on March 8, 2018, when president Donald Trump hiked the tariff rate of 25 per cent against steel products and 10 per cent against aluminium products. The after effect of a trade war between them is that the global stock market is showing a downward trend. Moreover, it affected with world’s largest economies like China, US and European Union. The tariff generally affects commodities like auto parts, processed food materials and construction materials. As a consequence, China also started imposing 25 per cent tariff on 545 categories of US products that directly imported from the United States. The major products are Soybeans, Beef, Whiskey, Vehicles and also coal and crude oil. It estimated around $50 billion. Trump’s next motive to impose more tariff on Chinese products and he claimed that China theft their intellectual property and unfair retaliation.

The primary consequences of a trade war are that countries are imposing the import tariff and are involved with tariff would losses their economic welfare and also experience collateral damage. The higher the tariff, it losses the total output in the economy and it would become permanent. The higher the prices that would destroy specialization in the new products and world productivity. When we are talking about the trade war between the US and China, it concluded that no winners in the war, when a country facing an import tariff will experience a decline in real export and GDP. The other trading partners also affected in the sense that weaker demand for their exported commodity. It generally happens through the supply chain or the more uncertain global demand for the product. Under the protectionist environment, the world trade suffers a lot; that is, multinational companies try hard to compete with the market. Both the US and China suffers from this trade war; there is a most significant decline in the import of goods and services. The significant impact on the war is that the real fixed investment is restrained that reflects the decline in export, the downward trend of equity prices and a drastic reduction in foreign domestic investment in these two countries.

The trade between the world’s largest countries like US and China indirectly affected the Asian economies. The factory activity in Asia is weakened and also fall in demand for the Chinese product hit the demand for most of the Asian economies. The recent index on purchasing managers shows that the decline in manufacturing products across the region. The Chinese spill over affects another Asian region especially in Malaysia’s manufacturing activity struggle for industries expansion and Taiwan struggling to move up since 2015. In Singapore, there is a considerable gap between forecasted GDP and estimated GDP and the cities manufacturing sector showing the declining trend. The Asian development bank latest report talking about that the trade war hurt the export-oriented Asian countries and expecting a global economic slowdown in the coming years. The world’s most significant economies tit-for-tat tariff strategies disrupt 100 of billion-dollar exchange of goods and services between the countries. Both the countries have pledged to talk about these issues but still, have uncertainty. So, this creating a massive difference between commercial practices and intellectual property are high.