The USA-China Trade Wars and The Impact to Other Countries

Why US and China?

The USA and China are the most influential countries in the world. They are the 1st and 2nd largest country in terms of GDP in the world. Both the world's largest economies are locking horn in trade wars ever since former president Donald Trump declared his intention of focusing on 'America first' policy. Chinese government has retaliated in similar lines, which led to escalation in the intensity of trade war. This bilateral trade war has many repercussions on the world economy and other individual country's economies in different ways. China is not too old player in the world international trade scenario. China became member of World Trade Organization only in 2001. But China's dominance in global business and trade grew rapidly after she become a member of World Trade Organisation (WTO) in 2001. Once China came to world trade, its international trade dominance has grown at rapid pace. China started gradually to dislodged the USA as the major exporter of merchandizes to Europe, Asia, Africa and South America . China' s economy has grown so rapid that it has become second largest economy trailing the United States of America in nominal as well as purchasing power parity terms.

However, the growth in foreign trade was lopsided with almost every other country running trade deficit with China including USA. The large and growing trade deficit with China, turn out to be an important political agenda in the 2016 America's presidential election campaign with Trump insisting on 'America first' policy. USA's trade deficit with China was US$ 83 billion in 2001, that rapidly increased to US$ 365 billion in 2016 during the election year. In the election campaign for re-electing to president post of USA in 2016, Donald Trump promised to address the issue of large trade deficit with China. According to him large deficit with China was due to unfair trade practice on Chinese part, including unfair technology transfer, intellectual property theft, denial of market access to American manufacturers and companies in China. (For example Google, Facebook, Twitter are ban in China) Further the trade deficit widened to US$ 395 billion in 2017 which strengthen the Trump's policy of focusing on America. In 2018, the trade deficit of USA with China rose to US$ 443 billion which was the starting point of the trade war. During the same time Chinese goods have flooded all other economies in the world.  

The Trade Wars

USA-China trade friction is the repercussions of longstanding political and economic disagreements and competition that the two countries have been engaging in. The two countries were unable to resolve the trade differences through official dialogue. The USA's grievances were the culmination of China's excessive use of unfair and protectionist trade practices such as unfair technology transfer, intellectual property theft, , denial of market access to American manufacturers and companies in China, export duties and quotas, state subsidies. On the other hand, China has countered the fairness of various anti-dumping and reciprocating strategies adopted by United States. China has disputed USA's uni-dimensional and protectionist measures, complaining that the USA does not follow the WTO rules and regulations for Most Favored Nations (MFNs).

The Impact on Japan, South Korea, And ASEAN Economy

Economies of Japan, South Korea and ASEAN were significantly exposed during the trade war. This is because both China and the USA accounts for the large part of their international trade. A capital surplus nation, Japan is the world's third-largest economy. Japan's import and export to USA are 5.5% and 4.5% respectively. Similarly Japan's exposure to China is significant as Japan accounts for 8.5% of China's total export and 5.1% of China's total imports. However Japan has lower trade to GDP ratio and is comparatively less sensitive to volatility in the international business. Japan's economy is backed by strong macro-economic fundamentals. The GDP growth has been mild but steady in Japan. 

South Korea has an export-oriented economy. Because of the trade friction between USA and China, Korea's economy is in difficult shape. South Korea's import from USA is 4.3% of USA's total exports. Similarly South Korea is major export destination for China. South Korea accounts for 8.4% of China's total export. South Korea has been engaging in twin problem i.e. decrease the Chinese dependence and already existed trade dispute with Japan. There has been significant drop in exports volume from Korea since December 2018. The worst hit product in terms of exports from the country is the data chips, which has decreased by 30 percent in November 2019. South Korea is expected to experience its slowest growth in the economy since the 2008 US led financial crisis. South Korea also being forced to choose between the USA and China which are its two largest trade partners. For instance USA has been forcing South Korea to restrict Chinese MNC Huawei's 5G technology implementation. 

The economic ties between the USA and ASEAN have been very significant as the USA has been a dominant power in South east Asia for decade. In 2010, the US exported US$ 81 billion worth of goods to ASEAN. The total export volume is expected to rise to US$152 billion by 2025. For Vietnam, USA is the largest export destination. In 2010, ASEAN has received a total of US$152 billions of FDI from various firms of USA origin. The capital inflow is expected to reach US$452 billion by 2025. On the other hand China has rapidly overtaken the USA as ASEAN's one of the largest trading partner. The Chinese-ASEAN Free Trade Agreement(FTA) was signed in 2003. Trade between China and ASEAN has increased manyfold when the FTA was implemented in 2010. China's total export to ASEAN was amounted to US$138 billion in 2010. The export figure has increased to US$383 billions in 2020. Similarly ASEAN's exports to China has increased from US$113 billion in 2010 to US$248 billion in 2020. Trade between the two regions are expected to rise exponentially in coming years because of geographical and political proximity. Historically China has a close a relations with Myanmar, Cambodia and Laos. These countries are highly reliant on Chinese imports and exports while at the same time enhancing their political cooperation with China. Many analysts have estimated that the economies like Vietnam of ASEAN as the potential gainer of the trade friction between USA and China. Multinational companies based in the Chinese territory have gradually started to shift their manufacturing facilities into Southeast Asia. Emerging economies in the ASEAN are the potential gainers of significant export diversions from the USA. For instance, Vietnam which is significant trade partner of USA, is the largest beneficiary. The inflow of FDI into Vietnam has increased by  86% in 2019. Exports of Vietnamese products to the USA have increased by 36% in the same year. The relocation of manufacturing facilities of MNCs are expected to benefit Vietnam the most, because of the advantage of being low-cost producing nation along with skilled labour. However in the event of the over escalation of the trade war, ASEAN might face the challenges of disintegrations among its member nations, the reason being that some nations would be likely to seek closer relations to China whereas for others with the USA.