In late March of this year, the Chinese government swore to President Trump that, if conflict arises, they will “fight to the end.” ‘Fighting,’ in this context, does not necessarily mean firing missiles and machine guns, yet it does signify something equally unsettling: a trade war.
For the sake of simplicity, a trade war is when two or more countries impose economic measures (in this case, tariffs on goods from each nation) to harm one anothers’ economies. Before I can explain how a trade war could be detrimental to the United States economy, you must understand the history of China’s modern economic policy.
In 1949, a revolution in mainland China overthrew the existing nationalist government in favor of the current communist regime. This shift in politics resulted in China removing itself from international trade, focusing on only producing for itself. However, due to corruption in the government as well as numerous harmful socialist campaigns, living standards among the vast majority of Chinese citizens stagnated from 1930 to 1970. Finally, in 1978, the communist government decided to do what they vowed against for the past 30 years: open up to the capitalist West. And it has never looked back.
The Chinese economy boomed due to the tremendous amount of exports it’s produced (you’ve seen Made in China on at least a thousand different products). By 2009, China exceeded Japan in national GDP, claiming the title of the largest economy in the world — after the United States.
While the American economy might still be increasing by 2.5% each year, China’s is rising at triple that speed. This, as well as other indicators, suggest that the Chinese economy might be able to take over its American rival in the years to come. Except, now that President Trump has promised to slap a 25% tariff on $50 billion worth of Chinese imports, the potential Chinese takeover might come sooner than expected.
In this situation, the edge that the United States economy has on China’s may not be as much of an aid to Americans as the Trump Administration might have hoped. This is because large portions of U.S. exports are bought by Chinese firms. A key characteristic of a trade war is that imports from foreign countries involved drastically decreases due to tariffs. By this logic, the U.S. can lose a massive amount of international customers while China can retain its other foreign consumers.
Even though all of these facts and events may sound threatening, they may not signify an immediate end to the American dominance over world trade. Neither the American or Chinese tariffs have been permanently established. Despite this, the unknown results of the looming trade war with China are terrifying economists, government officials, and the general public alike. The only certain thing about these next moments on the global stage is that the economic future of our world can drastically change.