The Consequences in Trade War Between US and China

Someone sent me a short note on the trade war between the US and China a few days ago and asked for my opinion. 

First of all, I am not an economist, nor am I good in economic, except I do have basic idea in economics when I did my postgraduate in nutrition at the University of London where we need to learn some economics on food supply, agriculture, food balance sheet, food distribution among others among rich, poor and developing nations.

My background in nutrition and food economics also gives me a unique perspective on global trade, especially in agriculture and food distribution and the economic aspects related to food security, supply chains, or even the impact of climate change on agriculture. 

Using my basic understanding in economic, I understand  Donald Trump, President of United States wants to increase high tariffs on goods from China in his trade war between these two giant economies. 

How does that impact both countries and its repercussions on other countries? Wouldn't that not affect US consumers with higher prices for Chinese goods, affect their importers, China diverting their goods to other countries and causes economic imbalances among smaller and emerging economies, simulate the US to produce their own products similar to those from China among others? 

Let me give my personal basic views in economic for this multi-layered question about the economic and geopolitical consequences of high tariffs in a trade war between the U.S. and China. Let me break it down into key impacts and repercussions.

Impact on the U.S.

There will be higher prices for consumers. Tariffs are essentially a tax on imported goods. U.S. importers will pay higher costs for Chinese products, which are then passed on to American consumers. This results in inflationary pressures and reduced purchasing power.

Then there will be strain on importers & businesses  were many U.S. businesses rely on Chinese goods for raw materials, components, and finished products. Higher tariffs increase their costs, forcing them to either absorb the losses, cut jobs, or pass the cost to consumers.

There will also be encouragement of domestic production, while tariffs make Chinese goods less competitive, they create an incentive for American companies to produce alternatives domestically. However, this is easier said than done, as manufacturing infrastructure and labour costs in the U.S. are much higher than in China.

There will be retaliatory tariffs from China as China typically responds by imposing tariffs on American goods, making it harder for U.S. exporters (especially farmers and tech companies) to sell to the Chinese market.

There will also be supply chain disruptions where many American companies have global supply chains integrated with China. Tariffs disrupt these networks, leading to costly adjustments, delays, or relocation of factories to other countries.

What about its impact on China? 

First, the loss of U.S. market share means  high tariffs make Chinese products less competitive in the U.S., leading to reduced exports and a slowdown in Chinese manufacturing. This could impact millions of Chinese workers.

Second, there will be diversion to other markets. China will seek alternative export destinations, such as Europe, Southeast Asia, Africa, and Latin America, to compensate for lost U.S. sales. There will be economic slowdown & job losses since reduced exports to the U.S. can slow down China’s economic growth, causing unemployment and potential social unrest.

Third, there will be an accelerated industrial upgrading. China may shift focus to producing high-tech, high-value goods instead of low-cost manufacturing, speeding up its transition to a more self-sufficient economy.

Lastly, strengthening regional alliances. China may strengthen economic ties with the European Union, ASEAN nations, and Africa to counterbalance its reliance on the U.S.

What will be the repercussions on other countries? 

First, I believe there will be emerging economies gain & lose in countries like Vietnam, Mexico, and India may benefit as companies relocate production away from China to avoid U.S. tariffs. However, they may also face pressure from both the U.S. and China in trade negotiations.

Secondly, there will be global economic uncertainty. There will be trade wars that create instability, affecting global financial markets, investment decisions, and economic growth worldwide.

Thirdly, there will be shifting trade alliances where other nations may be forced to take sides or adjust their economic strategies depending on how the U.S. and China shape their policies.

Finally there will be possible inflationary pressures,  if China diverts its exports to other countries, their local industries may suffer from oversupply, while U.S. tariffs contribute to global price increases.

While the goal of high tariffs is to protect domestic industries, the unintended consequences can be widespread. The U.S. may succeed in boosting some domestic production, but at the cost of higher consumer prices and trade retaliation. China, on the other hand, will pivot to new markets and industrial upgrades, reducing its dependence on the U.S. The global economy will experience imbalances, benefiting some emerging economies while disrupting others.

Let me give some historical examples of trade wars

(A) The Smoot-Hawley Tariff Act (1930) - The Great Depression Worsens

The U.S. imposed high tariffs on over 20,000 imported goods to protect domestic industries. Other countries retaliated with their own tariffs, leading to a sharp drop in global trade.

This worsened the Great Depression, as industries in the U.S. and Europe suffered due to reduced exports and higher prices.

Lesson we learn in protectionist tariffs can backfire by reducing global economic activity instead of reviving domestic industries.

(B) U.S.-Japan Trade War (1980s-1990s),  Auto Industry Battle. The U.S. accused Japan of flooding the market with cheap cars and electronics, harming American manufacturers.

The U.S. pressured Japan to limit exports, leading to the Voluntary Export Restraint (VER) Agreement.

Japan adapted by setting up factories in the U.S., reducing the impact of tariffs.

Lesson to learn is, companies find ways to bypass tariffs by shifting production or investing in foreign markets instead of stopping trade.

(C) U.S., European Union Trade Disputes (2000s-Present) -  Aircraft Subsidies & Steel Tariffs

The U.S. and EU have repeatedly clashed over subsidies for Boeing and Airbus, leading to tit-for-tat tariffs.

Trump’s administration imposed tariffs on steel and aluminum in 2018, which hurt global supply chains.

The EU retaliated with tariffs on American products like bourbon whiskey and motorcycles (Harley-Davidson).

 Lesson to lean is, trade wars hurt specific industries on both sides, forcing businesses to adjust and find new markets.

Industries Affected by the U.S.-China Trade War

(A) Technology Industry  was a battle for supremacy.

The U.S. imposed restrictions on Chinese tech companies like Huawei, ZTE, and SMIC, citing security risks.

China retaliated by restricting rare earth metal exports, crucial for U.S. electronics and military equipment. The result? Tech supply chains got disrupted, and the U.S. sought to develop domestic semiconductor manufacturing.

The impact was,  prices of smartphones, laptops, and 5G infrastructure increased.

(B) Agriculture where U.S. farmers struggle

China was a major buyer of U.S. soybeans, pork, and corn.

After the tariffs, China shifted purchases to Brazil and Argentina, leaving American farmers with surpluses.

The U.S. government had to provide subsidies to farmers to offset their losses.

The impact was, American farmers lost billions, while South America gained a stronger role in global agriculture.

(C) Manufacturing & Automotive - Higher Costs for Everyone

U.S. car manufacturers like Ford and General Motors rely on Chinese parts.

Tariffs increased the cost of auto parts, making American cars more expensive.

Some companies moved production to Mexico or Canada to bypass tariffs.

The impact was, car prices rose, and manufacturing jobs faced uncertainty.

(D) Retail & Consumer Goods. There was higher prices for everyday items. 

Walmart, target, and best buy rely on Chinese imports for electronics, clothing, and furniture. Tariffs increased prices for consumers, reducing spending power.

Many companies sought alternative suppliers in Vietnam, India, and Bangladesh.

The economic impact was, consumers paid more, and retailers struggled with profit margins.

Summary Reflections: 

From these examples, history teaches us that trade wars rarely have clear winners. Instead, industries and economies adapt, sometimes benefiting new players while harming existing ones. The U.S.-China trade war has forced companies to rethink supply chains, shift production, and pass costs to consumers.

What would be the long-term consequences of these shifts or how smaller economies can take advantage of trade wars?

I don't really know as I said I am not an economist or an expert in economics except I do have many basic lectures on it when I was studying economics and sociology as part of compulsory subjects  for my postgraduate in nutrition at London University Queen Elizabeth College

Sorry! That's all the knowledge I know on the current trade war between US and China. You need to find an expert to know more.