Winning Bizness Desk

Mumbai. Ninety years ago, Franklin D. Roosevelt investigated the causes of the world’s greatest economic depression. One major reason identified was retaliatory actions taken by countries in response to soaring import tariffs, which pushed the US economy toward destruction. This was a significant lesson for America.

For decades afterward, US leadership kept tariffs low and implemented various reforms to boost global trade. However, former US President Donald Trump, who is running for a second term, sees tariffs as a powerful economic weapon. He has announced a strict tariff policy against China.

China, in response, has lodged a complaint with the World Trade Organization (WTO). If the two countries fail to resolve their differences, this tariff war could escalate into a full-fledged trade war. Is Trump putting America at risk again? What will be the impact on China’s economy? And how will this conflict affect India and other countries? Let’s analyze.

Impact of Trump’s Previous Tariff Measures

According to The Economist, during Trump’s first term, strict tariff policies against China failed to reduce the US trade deficit. High tariffs strengthen the dollar, reducing demand for imported goods and lowering demand for foreign currencies. This also shrinks US exports. Despite Trump’s tough stance, the manufacturing sector saw job losses, though some sectors like steel benefitted. However, other industries suffered revenue declines.

China’s Countermeasures Against US Tariffs

China has responded by launching investigations into American tech giants like Apple and Google. It has also imposed a 15% tariff on imports of coal and LNG from the US. Additionally, China has levied a 10% tariff on American crude oil, agricultural equipment, large-displacement vehicles, and pickup trucks. The country has also tightened export controls on tungsten, a crucial mineral used by the US defense, electronics, and industrial manufacturing sectors. However, these measures have had limited impact on the US economy.

Who is Losing More in This Economic Conflict?

China currently enjoys a trade surplus of ₹23 lakh crore ($277 billion) with the US. The US tariffs cover ₹39 lakh crore ($470 billion) worth of Chinese goods, whereas Chinese tariffs apply to only ₹1.73 lakh crore ($21 billion) worth of US goods. After Trump’s election victory, China introduced a ₹121.4 lakh crore ($1.5 trillion) relief package to ease financial burdens on local governments. However, this is insufficient to cover its hidden debts. As a result, some local governments are unable to pay salaries on time and are making budget cuts.

Impact on India and Other Global Markets

According to Oxford Economics, India was the fourth-largest beneficiary of US tariffs between 2017 and 2023. With the increase in American tariffs, Chinese companies are relocating their manufacturing plants to Vietnam and Cambodia. China is also expanding exports to Southeast Asia, Africa, and Latin America and investing heavily in solar panels and artificial intelligence. Last year, China’s trade surplus reached a record ₹86 lakh crore ($1.03 trillion).

China Faces 2.5 Times Greater Loss Than the US

By 2025, China’s economic growth rate could drop to 4.1%, down from 5.4% in Q4 of 2024 due to the tariff war. The Peterson Institute for International Economics predicts that this conflict will negatively impact both economies. The US GDP could decline by 0.07% by 2027, while China's GDP may fall by 0.16%. Over four years, the US economy could shrink by ₹4.77 lakh crore ($57 billion), while China could lose ₹11 lakh crore ($132 billion).

China’s History of Breaking Trade Promises

In December 2018, China and the US failed to reach a trade agreement. Trump subsequently increased tariffs on ₹17.34 lakh crore ($208 billion) worth of Chinese goods from 10% to 25%. In January 2020, both countries signed a trade deal in which China pledged to buy an additional ₹17.33 lakh crore ($208 billion) worth of American goods and services over two years, but it failed to meet this commitment. Even during Joe Biden’s presidency, the US continued restricting Chinese tech companies from accessing American markets.